Basic 1 Forex Trading Exam Questions and Answers

What is the FOREX market? - ANSWER-Forex is short for foreign exchange. Forex is the exchange of one currency for another, at an agreed exchange price. Similar to the concept of stocks you want to buy a currency at one price and sell it at a higher price (or sell a currency at one price and buy it at a lower price) in order to make a profit. This market is the world's most traded market with an average turnover in excess of US$ 5.3 trillion per day and is open to major institutions and individuals alike. The market is open 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday. Who are the main market participants in the market? - ANSWER-Major players in this market tend to be financial institutions like commercial banks, central banks (the government), money managers and hedge funds. Global corporations use forex markets to hedge currency risk from foreign transactions. Individuals (retail traders) are a very small portion of all forex volume and mainly use the market to speculate and day trade. What are the most traded currencies? - ANSWER-U.S. dollar (USD), euro (EUR), japanese yen (JPY), UK pound sterling (GBP), Swiss Franc (CHF) What are some things that affect the countries economy which of course influences the fluctuation of their currency? - ANSWER-Politics, interest rates, natural disasters, terrorism/wars, unemployment, and exports/imports. What are currency pairs? - ANSWER-Each currency pair involves two currencies. The value of one currency is compared to the other. The first currency in a pair is the "base currency" and the second is the "quote currency." For example, in the pair XAUUSD, the base currency is GOLD (XAU) and the quote currency is the US DOLLAR (USD). Using XAUUSD as an example, the US DOLLAR (USD) would be the quote currency. Similarly, the quote currency of GBPUSD also the US DOLLAR (USD). There are two ways in which any currency pair can move higher or lower. The base currency can strengthen or weaken and also the quote currency can strengthen or weaken. Because the Forex market is open 24 hours a day the value of each currency is always changing. In our example, if the XAU (base currency) were to strengthen while the USD (quote currency) remained static, then XAU would rise. Conversely, if the XAU weakened the pair would fall, all things being equal.