Question : The difference between the buying and selling price of a currency in the foreign exchange market is known as the ________.
Option 1: exchange rate spread
Option 2: bid-ask spread
Option 3: spot rate spread
Option 4: forward rate spread
Correct Answer:
bid-ask spread
Solution : The correct answer is (b) bid-ask spread.
The bid-ask spread is the difference between the buying price (bid) and the selling price (ask) of a currency in the foreign exchange market. When you want to buy a currency, you would pay the higher ask price, and when you want to sell a currency, you would receive the lower bid price. The bid-ask spread represents the transaction cost or the profit margin for market makers, such as banks or financial institutions, in the foreign exchange market.
The bid-ask spread can vary depending on various factors, including market liquidity, trading volume, and market participants. It is a common feature in financial markets and helps to ensure that there is a market for buying and selling currencies.
