Topic 4 FX

Q1. What does a direct quote represent?

• Foreign currency price of home currency

• Home currency price of a unit of foreign currency

• Price set by interbank traders

• Only used in cross rate calculations

. In Singapore, which is an example of a direct quote?

A. SGD 1 = USD 0.74
B. USD 1 = SGD 1.35
C. GBP 1 = EUR 1.16
D. SGD 1 = JPY 103.00

• SGD 1 = USD 0.74

• USD 1 = SGD 1.35

• GBP 1 = EUR 1.16

• SGD 1 = JPY 103.00

Q3. What is a pip in most currency pairs?

A. 0.00001
B. 0.001
C. 0.0001
D. 0.01

• 0.00001

• 0.001

• 0.0001

• 0.01

Q4. What is the bid price in FX trading?

A. Price dealer charges to sell base currency
B. Price dealer is willing to buy base currency
C. Midpoint between ask and spread
D. Reciprocal of the indirect quote

• Price dealer charges to sell base currency

• Price dealer is willing to buy base currency

• Midpoint between ask and spread

• Reciprocal of the indirect quote

Q5. If EUR/USD = 1.1250 (bid), what is the USD/EUR ask?

A. 0.8890

B. 0.8750

C. 1.1250

D. 0.8889

• 0.8890

• 0.8750

• 1.1250

• 0.8889

Answer explanation

Working: Reciprocal of 1.1250 → 1 / 1.1250 = 0.8889

Q6. The bid-ask spread is:

A. The average of bid and ask
B. The difference between bid and ask prices
C. Always equal to the margin
D. Calculated using cross rate

• The average of bid and ask

• The difference between bid and ask prices

• Always equal to the margin

• Calculated using cross rate

Q7. A customer sells USD to a dealer at the indirect bid. What is the dealer doing?

A. Selling base currency
B. Buying quote currency
C. Buying base currency

D. Quoting cross rate

• Selling base currency

• Buying quote currency

• Buying base currency

• Quoting cross rate

Q8. A speculator buys GBP using USD. Which rate should they look at?

A. Direct bid
B. Indirect bid
C. Direct ask
D. Cross bid

• Direct bid

• Indirect bid

• Direct ask

• Cross bid

Q9. What happens to bid-ask spreads with higher FX rate volatility?

A. Narrower spreads
B. No change
C. Spreads widen
D. Spreads disappear

• Narrower spreads

• No change

• Spreads widen

• Spreads disappear

Q10. Why do bid-ask spreads decrease with more dealer competition?

A. Dealers pass cost to customers
B. Lower volatility
C. Higher trading fees
D. More competitive pricing

• Dealers pass cost to customers

• Lower volatility

• Higher trading fees

• More competitive pricing