Forex Trading Currency Pairs 5 — Questions and Answers
Question 1: Which currency pair is commonly called 'The Fiber'?
- GBP/USD
- EUR/USD (Correct answer)
- USD/CHF
- EUR/GBP
Correct answer: EUR/USD
EUR/USD is nicknamed 'The Fiber' because the euro was introduced over fiber-optic cables, distinguishing it from the older 'Cable' (GBP/USD).
Question 2: How does a central bank interest rate hike typically affect its country's currency in a forex pair?
- Weakens the currency due to higher borrowing costs
- Strengthens the currency by attracting foreign capital (Correct answer)
- Has no effect on exchange rates
- Causes the currency to be delisted from major pairs
Correct answer: Strengthens the currency by attracting foreign capital
Higher interest rates attract foreign investors seeking better returns, increasing demand for the currency and strengthening it.
Question 3: In a currency pair, what does it mean when the spread widens significantly?
- Liquidity has increased in the market
- Market volatility or illiquidity is making trades more costly (Correct answer)
- The pair is about to trend strongly upward
- A central bank intervention is occurring
Correct answer: Market volatility or illiquidity is making trades more costly
A widening spread signals reduced liquidity or increased uncertainty, making it more expensive for traders to enter and exit positions.
Question 4: Which statement correctly describes a 'minor' or 'cross' currency pair?
- Pairs involving only Asian currencies
- Pairs that exclude the US Dollar but include two major currencies (Correct answer)
- Pairs with daily volume under $1 billion
- Any pair traded outside New York hours
Correct answer: Pairs that exclude the US Dollar but include two major currencies
Minor pairs (crosses) are pairs between two major currencies that do not include the US Dollar, such as EUR/GBP or AUD/JPY.
Question 5: If USD/CAD moves from 1.3500 to 1.3600, what happened?
- CAD strengthened against USD
- USD strengthened against CAD (Correct answer)
- Both currencies weakened equally
- The pair's spread increased by 100 pips
Correct answer: USD strengthened against CAD
A rising USD/CAD rate means more CAD is needed to buy one USD, indicating USD appreciation relative to CAD.
Question 6: Which of the following pairs is most commonly used as a safe-haven trade during global uncertainty?
- AUD/NZD
- GBP/CAD
- USD/JPY (sell) or USD/CHF (sell) (Correct answer)
- EUR/TRY
Correct answer: USD/JPY (sell) or USD/CHF (sell)
During risk-off periods, investors sell USD/JPY and USD/CHF (buying JPY and CHF) as both are considered safe-haven currencies.
Question 7: What does 'rollover' or 'swap' mean in the context of holding a forex position overnight?
- The position is automatically closed at midnight
- Interest is either credited or debited based on the interest rate differential of the pair (Correct answer)
- The spread doubles after market close
- The broker converts your position to a different currency pair
Correct answer: Interest is either credited or debited based on the interest rate differential of the pair
Rollover (swap) reflects the interest rate differential between the two currencies — traders earn or pay interest depending on the direction of their trade.
Forex Trading Currency Pairs 5
Which currency pair is commonly called 'The Fiber'?