Question : What is the term used to describe the difference between the buying and selling prices of a currency in the foreign exchange market?
Option 1: Spread
Option 2: Margin
Option 3: Pip
Option 4: Yield
Correct Answer:
Spread
Solution : The correct answer is (a) Spread.
The term used to describe the difference between the buying and selling prices of a currency in the foreign exchange market is "spread." When you convert one currency into another, there is always a difference between the price at which you can buy the currency (ask price) and the price at which you can sell it (bid price). The spread represents the cost of the transaction for the buyer and the profit for the seller, including any fees or commissions charged by the broker or financial institution facilitating the trade.
The spread is typically quoted in pips, which stands for "percentage in point" or "price interest point." A pip is the smallest unit of movement in a currency pair. For example, if the EUR/USD currency pair has a spread of 2 pips, it means that the difference between the buying and selling prices is 2 pips.
Traders and investors in the foreign exchange market need to consider the spread when executing currency transactions, as it directly affects the cost and potential profitability of their trades.
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