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SIAA Foreign Exchange study materials
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SIAA Foreign Exchange practice questions

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Question 1Foreign Exchange Market Structure and Participants

In the foreign exchange market, which type of participant is obligated to make continuous two-way prices to clients?

  1. A market-making dealer Correct answer.
  2. A pension fund custodian
  3. A central bank reserve manager
  4. A retail corporate treasurer

Explanation

Market makers quote both bid and offer prices on a continuous basis and earn the spread while managing inventory risk. Other participants trade when they have a commercial or investment need and are not obliged to provide liquidity.

Question 2Foreign Exchange Market Structure and Participants

What is the primary economic function performed by the foreign exchange market?

  1. Guaranteeing fixed interest rates on deposits
  2. Setting national income tax rates
  3. Issuing sovereign debt securities
  4. Transferring purchasing power between currencies Correct answer.

Explanation

The FX market allows value denominated in one currency to be converted into another, enabling cross-border payments, trade settlement, and investment. Price discovery of exchange rates is a by-product of this transfer of purchasing power.

Question 3Foreign Exchange Market Structure and Participants

Which segment of the FX market accounts for the largest share of global turnover?

  1. Currency futures traded on exchanges
  2. Physical banknote exchange
  3. FX swaps Correct answer.
  4. Retail margin trading platforms

Explanation

FX swaps, in which two parties exchange currencies spot and agree to reverse the trade at a future date, represent the single largest instrument category in global turnover surveys. They are used mainly for short-term funding and liquidity management.

Question 4Foreign Exchange Market Structure and Participants

A treasurer must pay a supplier in three business days. Which FX transaction best matches this need?

  1. A six-month FX swap
  2. A rolling tom-next swap
  3. A one-year forward contract
  4. A spot transaction for value two business days later Correct answer.

Explanation

Standard spot settlement occurs two business days after the trade date, which aligns closely with a payment due in three days. Longer-dated swaps and forwards would create mismatched cash flows and unnecessary exposure.

Question 5Foreign Exchange Market Structure and Participants

Which body publishes the triennial survey that is widely used to measure global foreign exchange turnover?

  1. The Bank for International Settlements Correct answer.
  2. The International Monetary Fund
  3. The World Trade Organization
  4. The Financial Stability Board

Explanation

The Bank for International Settlements coordinates the triennial central bank survey of foreign exchange and derivatives market activity. It is the standard reference for global turnover statistics.

Question 6Foreign Exchange Market Structure and Participants

In the hierarchy of the interbank market, what distinguishes a prime broker from an ordinary liquidity provider?

  1. It only trades on behalf of retail clients
  2. It acts as the official regulator of dealer conduct
  3. It offers credit, technology, and settlement services to other market participants Correct answer.
  4. It is restricted to dealing in a single currency pair

Explanation

Prime brokers extend credit lines, trading infrastructure, and operational support so that clients such as hedge funds can access multiple liquidity providers. A pure liquidity provider simply quotes prices for its own book.

Question 7Foreign Exchange Market Structure and Participants

A central bank intervenes by selling its own currency in the open market. What is the most direct intended effect?

  1. To raise the domestic currency's official peg permanently
  2. To depreciate the domestic currency Correct answer.
  3. To eliminate the need for reserves
  4. To appreciate the domestic currency

Explanation

Selling domestic currency adds to its supply in the market, which tends to weaken it against foreign currencies. Authorities use such intervention to counter excessive appreciation or support export competitiveness.

Question 8Foreign Exchange Market Structure and Participants

Which statement best describes the role of non-financial corporates in the FX market?

  1. They act as lenders of last resort in currency markets
  2. They set official exchange rate fixings each morning
  3. They provide continuous two-way quotes to banks
  4. They trade mainly to hedge commercial exposures and fund operations Correct answer.

Explanation

Corporates participate in FX mainly to manage cash flows from trade, financing, and foreign subsidiaries. Their activity is driven by commercial needs rather than by the obligation to make markets.

Question 9Foreign Exchange Market Structure and Participants

What does the term 'buy-side' refer to in the context of FX market structure?

  1. Settlement agents that confirm trades
  2. Asset managers and funds that consume liquidity from dealers Correct answer.
  3. Dealers that stream prices to each other
  4. Regulators that supervise currency trading

Explanation

The buy-side comprises institutional investors, hedge funds, and asset managers that trade for their own portfolios and obtain liquidity from sell-side dealers. The sell-side consists of the banks and non-bank dealers that quote prices.

Question 10Foreign Exchange Market Structure and Participants

An exporter expects to receive one million euros in six months and wants certainty about the domestic currency proceeds. Which tool is most appropriate?

  1. Buying euros spot today
  2. Selling euros forward for six-month value Correct answer.
  3. Buying euro call options and paying a premium
  4. Entering a spot-next swap

Explanation

A forward sale of euros locks in an exchange rate for the future receipt and removes uncertainty about the domestic currency proceeds. Because the exposure is a known future inflow, a forward matches the timing and amount precisely.

Question 11Foreign Exchange Market Structure and Participants

Which feature most clearly distinguishes an over-the-counter FX transaction from an exchange-traded currency future?

  1. The OTC trade is standardised and cleared by a central counterparty
  2. The OTC trade always settles on the same day
  3. The OTC trade is a privately negotiated bilateral contract Correct answer.
  4. The OTC trade is available only to retail investors

Explanation

OTC FX contracts are negotiated directly between counterparties, with terms such as amount, date, and rate tailored to the parties' needs. Exchange-traded futures instead use standardised contracts and central clearing.

Question 12Foreign Exchange Market Structure and Participants

What is the main purpose of a central counterparty in cleared FX products?

  1. To publish economic statistics used by traders
  2. To lend foreign currency to sovereign governments
  3. To interpose itself between buyers and sellers and manage counterparty credit risk Correct answer.
  4. To set the official exchange rate for the day

Explanation

A central counterparty becomes the buyer to every seller and the seller to every buyer, novating trades and applying margin to control credit exposure. This reduces the risk that one participant's default disrupts others.

Question 13Foreign Exchange Market Structure and Participants

A dealer quotes EUR/USD at 1.1050 bid and 1.1052 offer. A client sells one million euros. What amount of US dollars does the client receive?

  1. 1,105,000 Correct answer.
  2. 1,105,100
  3. 1,104,800
  4. 1,105,200

Explanation

The client sells euros, so the dealer buys at its bid of 1.1050. Multiplying one million euros by 1.1050 gives 1,105,000 US dollars.

Question 14Foreign Exchange Market Structure and Participants

Why do bid-offer spreads in major currency pairs such as EUR/USD tend to be narrower than in exotic pairs?

  1. Exotic pairs settle on the same day
  2. Major pairs are traded only by central banks
  3. Major pairs have deeper liquidity and lower volatility Correct answer.
  4. Exotic currencies are banned from electronic trading

Explanation

Deep liquidity and intense competition among dealers in major pairs allow tight spreads because inventory risk is easier to manage. Exotic pairs trade less frequently and are more volatile, so dealers widen spreads to compensate.

Question 15Foreign Exchange Market Structure and Participants

Which participant typically acts as the ultimate source of domestic currency liquidity in a crisis?

  1. A retail broker
  2. A central bank Correct answer.
  3. A corporate treasurer
  4. A currency fund

Explanation

Central banks can create domestic currency and supply it against collateral when private liquidity dries up. This lender-of-last-resort capacity makes them the ultimate backstop in stressed markets.

Question 16Foreign Exchange Market Structure and Participants

What is the role of an FX fixing such as the daily reference rate published by a central bank?

  1. To provide a benchmark rate used for valuation and contract settlement Correct answer.
  2. To set the interest rate on central bank reserves
  3. To replace the interbank market entirely
  4. To guarantee that all trades execute at that rate

Explanation

A fixing is a benchmark calculated from market data at a specified time and is used to value portfolios and settle contracts that reference it. Trades themselves continue to execute at prevailing market prices.

Question 17Foreign Exchange Market Structure and Participants

A firm's trades are executed at the prevailing fixing rate plus a small markup, with no pre-trade price shown. Which execution method does this describe?

  1. Fixing order Correct answer.
  2. Request-for-quote
  3. Streaming executable price
  4. Limit order

Explanation

A fixing order is executed at the official benchmark rate for the fixing window, with the provider adding an agreed margin. The client does not see an executable price before the trade.

Question 18Foreign Exchange Market Structure and Participants

Which of the following best explains why non-bank market makers have grown in significance in FX?

  1. They are exempt from all regulatory oversight
  2. They trade only on behalf of governments
  3. They use technology to quote competitively on electronic venues Correct answer.
  4. They hold exclusive rights to central bank facilities

Explanation

Electronic trading platforms and sophisticated pricing technology have allowed non-bank firms to compete with banks in quoting and hedging flow. Their growth reflects technology and risk appetite rather than regulatory exemption.

Question 19Foreign Exchange Market Structure and Participants

What does 'last look' mean in the context of electronic FX liquidity provision?

  1. The last trade of the trading day
  2. The final benchmark rate published each week
  3. A dealer's final confirmation of the settlement date
  4. A liquidity provider's right to reject or re-price a trade after receiving the order Correct answer.

Explanation

Last look gives the liquidity provider a brief window to check the order and, if it falls outside tolerance, to reject or re-price it. The practice is intended to protect against stale or toxic flow but has been criticised for creating asymmetry.

Question 20Foreign Exchange Market Structure and Participants

An investor wants the right, but not the obligation, to buy foreign currency at a set rate in the future. Which instrument provides this?

  1. A forward contract
  2. An FX swap
  3. A currency call option Correct answer.
  4. A spot purchase

Explanation

A call option grants the holder the right to buy the underlying currency at a specified strike, with no obligation if the market moves favourably. The holder pays a premium for this flexibility.

Question 21Foreign Exchange Market Structure and Participants

On which type of venue do dealers typically see and execute on prices streamed by multiple liquidity providers simultaneously?

  1. A central bank standing facility
  2. A multilateral electronic trading platform Correct answer.
  3. A bilateral voice broker line
  4. A primary bond auction

Explanation

Multilateral electronic platforms aggregate streams from several liquidity providers so that dealers can compare and execute at the best available price. This contrasts with bilateral dealing, where a single counterparty quotes.

Question 22Foreign Exchange Market Structure and Participants

A pension fund needs to convert a large sum from one currency to another over several days to avoid moving the market. Which approach best reflects sound execution practice?

  1. Wait until the fixing window and trade the full amount
  2. Place the order with a single dealer without comparison
  3. Execute the entire amount in a single trade at any price
  4. Slice the order across time and venues to limit market impact Correct answer.

Explanation

Breaking a large order into smaller pieces and executing across venues and time reduces information leakage and market impact. This approach seeks a better average price than a single large trade.

Question 23Foreign Exchange Market Structure and Participants

Which of these parties is most likely to act as an FX prime broker for a hedge fund?

  1. A retail currency kiosk
  2. A trade union
  3. A large commercial or investment bank Correct answer.
  4. A national statistics office

Explanation

Prime brokerage services, including credit intermediation and operational support, are offered by large banks with the balance sheet and infrastructure to do so. They allow clients to trade with multiple liquidity providers under one credit arrangement.

Question 24Foreign Exchange Market Structure and Participants

Why is the share of interbank dealing in total FX turnover often described as having declined relative to other counterparties?

  1. Banks have been banned from trading with each other
  2. Central banks have taken over all dealer activity
  3. Electronic platforms have made it easier for clients to access liquidity directly Correct answer.
  4. Interbank trading now settles only on a monthly basis

Explanation

Technology and platform access have allowed asset managers and corporates to obtain competitive prices without routing everything through interbank dealers. As a result, the relative share of pure interbank activity has fallen even as total turnover has grown.

Question 25Spot Exchange Rates and Quotation Conventions

In a spot FX quotation written as EUR/USD 1.0850, what does the base currency refer to?

  1. The euro, which is the currency being priced against the US dollar Correct answer.
  2. The US dollar, which is the currency used to buy the euro
  3. The currency that always appears second in the quote
  4. The currency with the lower interest rate in the pair

Explanation

In a currency pair the base currency is the one written first and is the unit being priced; the second currency is the quote or counter currency. So EUR/USD 1.0850 means one euro costs 1.0850 US dollars, and the euro is the base.

Question 26Spot Exchange Rates and Quotation Conventions

A dealer quotes USD/JPY as 148.25 / 148.35. A customer wants to buy US dollars from the dealer. At which rate does the trade occur?

  1. 148.25
  2. 148.30
  3. 148.35 Correct answer.
  4. 147.35

Explanation

The dealer's ask (offer) is the rate at which the dealer sells the base currency, here the US dollar, so the customer pays the higher figure of 148.35. The bid of 148.25 applies to a customer selling dollars to the dealer.

Question 27Spot Exchange Rates and Quotation Conventions

What is the standard market convention for the number of decimal places in most major spot FX quotations?

  1. Three decimal places, with the last digit called a big figure
  2. Four decimal places, with the last digit called a pip Correct answer.
  3. Six decimal places, with the last two digits called a pip
  4. Two decimal places, with the last digit called a pip

Explanation

Most major currency pairs are quoted to four decimal places, and the fourth decimal place is conventionally termed a pip. Yen pairs are a common exception, quoted to two decimals because of the yen's scale.

Question 28Spot Exchange Rates and Quotation Conventions

A trader says the euro is trading at a 30-pip spread against the dollar, with a bid of 1.0800. What is the ask?

  1. 1.0803
  2. 1.1100
  3. 1.0770
  4. 1.0830 Correct answer.

Explanation

A pip in a four-decimal quote is 0.0001, so a 30-pip spread equals 0.0030. Adding this to the bid of 1.0800 gives an ask of 1.0830.

Question 29Spot Exchange Rates and Quotation Conventions

Which statement correctly describes a direct quotation from the perspective of a US-based observer?

  1. The price of one US dollar expressed in gold
  2. The price of one US dollar expressed in units of foreign currency
  3. The price of one unit of foreign currency expressed in US dollars Correct answer.
  4. The price of one unit of gold expressed in US dollars

Explanation

A direct quote states the value of one unit of foreign currency in the home currency. For a US observer, that means foreign currency priced in US dollars. An indirect quote reverses this, pricing the home currency in foreign units.

Question 30Spot Exchange Rates and Quotation Conventions

A bank posts EUR/GBP 0.8500 / 0.8510. What is the bid-ask spread expressed in pips?

  1. 0.10 pips
  2. 100 pips
  3. 1 pip
  4. 10 pips Correct answer.

Explanation

The spread is the difference between ask and bid: 0.8510 minus 0.8500 equals 0.0010. In a four-decimal quote each pip is 0.0001, so 0.0010 corresponds to 10 pips.

Question 31Spot Exchange Rates and Quotation Conventions

In the interbank market, what does it mean when a quote is described as a two-way price?

  1. The dealer states only the rate at which they will buy
  2. The dealer states only the rate at which they will sell
  3. The dealer states both a bid and an ask at which they will trade Correct answer.
  4. The dealer states a rate valid for two separate trading days

Explanation

A two-way price consists of a simultaneous bid and ask, showing the levels at which the dealer is prepared to buy and sell the base currency. This lets a counterparty know both sides of the market before dealing.

Question 32Spot Exchange Rates and Quotation Conventions

A UK company holds US dollars and wants to convert them into pounds. Given GBP/USD 1.2500 / 1.2510, which rate applies to the company?

  1. 1.2500 Correct answer.
  2. 1.2525
  3. 1.2505
  4. 1.2510

Explanation

With GBP as the base, the company is selling dollars to the bank, which means the bank buys the base currency at its bid. The applicable rate is therefore the bid of 1.2500, giving fewer pounds per dollar.

Question 33Spot Exchange Rates and Quotation Conventions

Given USD/CHF 0.9050 and USD/SGD 1.3450, what is the CHF/SGD cross rate?

  1. 0.6729
  2. 1.4862 Correct answer.
  3. 1.3450
  4. 1.2172

Explanation

To obtain CHF/SGD, divide the SGD-per-USD rate by the CHF-per-USD rate: 1.3450 divided by 0.9050 equals about 1.4862. This expresses how many Singapore dollars one Swiss franc buys.

Question 34Spot Exchange Rates and Quotation Conventions

If EUR/USD is 1.1000 and USD/JPY is 150.00, what is the EUR/JPY cross rate?

  1. 150.00
  2. 1.1000
  3. 136.36
  4. 165.00 Correct answer.

Explanation

When the base of the first pair matches the quote of the second, the cross rate is the product of the two rates. Multiplying 1.1000 by 150.00 gives 165.00 yen per euro.

Question 35Spot Exchange Rates and Quotation Conventions

A quote shows USD/JPY 148.00 / 148.10 and the customer wishes to sell US dollars. Which rate applies?

  1. 148.00 Correct answer.
  2. 148.05
  3. 148.10
  4. 148.20

Explanation

The dealer buys the base currency at the bid, so a customer selling dollars receives the bid rate of 148.00. The ask of 148.10 would apply if the customer were buying dollars.

Question 36Spot Exchange Rates and Quotation Conventions

What does an indirect quotation show for a dealer based in Japan?

  1. The number of yen per one US dollar only
  2. The gold content of the Japanese yen
  3. The number of foreign currency units per one Japanese yen Correct answer.
  4. The number of yen per one unit of foreign currency

Explanation

An indirect quote from a Japanese perspective prices one unit of the home currency, the yen, in foreign currency terms. A direct quote would instead show yen per unit of foreign currency.

Question 37Spot Exchange Rates and Quotation Conventions

A market maker quotes EUR/USD 1.0850 / 1.0855 and then receives a quote of 1.0848 / 1.0852 from another dealer. What does this indicate about the second dealer's pricing?

  1. The second dealer's ask is higher than the first dealer's ask
  2. The second dealer's spread is wider than the first dealer's spread
  3. The second dealer's bid is below the first dealer's bid, showing a slightly weaker euro view Correct answer.
  4. The second dealer is quoting an identical two-way price

Explanation

Comparing bids, 1.0848 is lower than 1.0850, indicating the second dealer values the euro slightly less on the buying side. The spread of the second quote is also narrower, not wider, and the prices are not identical.

Question 38Spot Exchange Rates and Quotation Conventions

If the EUR/USD spot rate is 1.1200, how many US dollars are needed to purchase 250,000 euros?

  1. 1,120,000
  2. 280,000 Correct answer.
  3. 250,000
  4. 223,214

Explanation

Since each euro costs 1.1200 dollars, multiply the euro amount by the rate: 250,000 times 1.1200 equals 280,000 dollars. This is a straightforward application of the base-currency pricing convention.

Question 39Spot Exchange Rates and Quotation Conventions

A trader observes that the EUR/USD bid-ask is 1.0850 / 1.0852 while the USD/CHF bid-ask is 0.9050 / 0.9052. Approximately what is the implied EUR/CHF bid using the appropriate sides?

  1. 1.1990
  2. 0.9818
  3. 0.9820 Correct answer.
  4. 0.9822

Explanation

To derive the EUR/CHF bid, multiply the EUR/USD bid by the USD/CHF bid: 1.0850 times 0.9050 equals about 0.9820. Using consistent sides avoids crossing the spread and overstating the derived rate.

Question 40Spot Exchange Rates and Quotation Conventions

Which currency pair convention means the US dollar is the base currency when quoted against the euro?

  1. EUR/GBP
  2. GBP/USD
  3. USD/EUR Correct answer.
  4. EUR/USD

Explanation

The base currency is written first, so USD/EUR places the US dollar as the base and the euro as the quote currency. In EUR/USD the roles are reversed, with the euro as the base.

Question 41Spot Exchange Rates and Quotation Conventions

A customer is quoted a spread of 3 pips on a four-decimal pair with a bid of 1.2345. What is the ask?

  1. 1.2342
  2. 1.2355
  3. 1.2375
  4. 1.2348 Correct answer.

Explanation

Three pips equal 0.0003 in a four-decimal quote, so adding this to the bid of 1.2345 gives an ask of 1.2348. The ask must always sit above the bid.

Question 42Spot Exchange Rates and Quotation Conventions

What is the term for the leading digits of an FX rate that dealers often omit when quoting quickly, such as the '1.08' in 1.0850?

  1. The big figure Correct answer.
  2. The pip
  3. The spread
  4. The cross rate

Explanation

The big figure refers to the leading digits of a rate that market participants treat as known, allowing dealers to quote only the last digits. Pips are the smallest price increment, while the spread is the bid-ask difference.

Question 43Spot Exchange Rates and Quotation Conventions

An exporter in the eurozone will receive 500,000 US dollars and wants to convert to euros at EUR/USD 1.1000. How many euros will the exporter receive?

  1. 454,545 Correct answer.
  2. 550,000
  3. 500,000
  4. 1,100,000

Explanation

Because EUR/USD states dollars per euro, converting dollars into euros requires dividing by the rate: 500,000 divided by 1.1000 equals about 454,545 euros. Multiplying would incorrectly treat the rate as euros per dollar.

Question 44Spot Exchange Rates and Quotation Conventions

A dealer quotes EUR/USD 1.0850 / 1.0852. A client simultaneously buys euros at the ask and immediately sells them back at the bid. What is the loss in pips from the round trip, excluding other costs?

  1. 2 pips Correct answer.
  2. 0 pips
  3. 4 pips
  4. 1 pip

Explanation

The client buys at 1.0852 and sells at 1.0850, losing the full spread of 0.0002, which equals 2 pips. The round-trip cost equals the bid-ask spread when no rate movement occurs.

Question 45Spot Exchange Rates and Quotation Conventions

Given EUR/USD 1.0850 / 1.0852 and USD/JPY 148.00 / 148.02, what is the approximate EUR/JPY ask?

  1. 160.68
  2. 160.58
  3. 160.75
  4. 160.63 Correct answer.

Explanation

For the EUR/JPY ask, multiply the EUR/USD ask by the USD/JPY ask: 1.0852 times 148.02 equals about 160.63. Consistent use of ask sides on both legs gives the rate at which the market sells euros for yen.

Question 46Spot Exchange Rates and Quotation Conventions

A bank quotes USD/CAD 1.3600 / 1.3605. A corporate client wants to sell 1,000,000 US dollars. What is the CAD proceeds using the correct side?

  1. 1,360,250
  2. 735,294
  3. 1,360,500
  4. 1,360,000 Correct answer.

Explanation

The client is selling the base currency, the US dollar, so the bank buys at its bid of 1.3600. Multiplying 1,000,000 by 1.3600 yields 1,360,000 Canadian dollars.

Question 47Spot Exchange Rates and Quotation Conventions

If the AUD/USD rate is 0.6600 and the NZD/USD rate is 0.6100, what is the AUD/NZD cross rate?

  1. 1.2700
  2. 0.4026
  3. 1.0820 Correct answer.
  4. 0.9242

Explanation

Both quotes share the US dollar as the quote currency, so the cross rate is the ratio of the two: 0.6600 divided by 0.6100 equals about 1.0820. This gives the number of New Zealand dollars per Australian dollar.

Question 48Spot Exchange Rates and Quotation Conventions

A dealer's quote moves from EUR/USD 1.0850 / 1.0852 to 1.0855 / 1.0857. Which statement best describes the change?

  1. The bid rose by 5 pips while the ask fell by 5 pips
  2. Both bid and ask rose by 5 pips, with the spread unchanged at 2 pips Correct answer.
  3. The spread widened from 2 pips to 7 pips
  4. The euro weakened against the dollar on both sides

Explanation

The bid moved from 1.0850 to 1.0855 and the ask from 1.0852 to 1.0857, each rising 5 pips. The spread remains 0.0002, or 2 pips, so the dealer's pricing shifted upward without changing the spread.

Question 49Forward Contracts and Outright Forwards

In an outright forward foreign exchange transaction, when does the actual exchange of the two currencies normally take place?

  1. On a value date later than the spot date Correct answer.
  2. At a date chosen randomly by the counterparties
  3. On the trade date itself before noon
  4. On the spot settlement date for the trade

Explanation

An outright forward fixes a rate now but settles on a future value date that lies beyond the normal spot settlement date. The trade date is when terms are agreed, not when currencies move. Settlement occurs on the agreed forward value date, typically a fixed period such as one, three, or six months after spot.

Question 50Forward Contracts and Outright Forwards

A corporate treasurer wants to lock in today a rate for converting euros to dollars in exactly six months. Which instrument most directly achieves this?

  1. A spot EUR/USD purchase settled in two business days
  2. An outright forward EUR/USD contract for six months Correct answer.
  3. Buying EUR cash and holding it in a vault
  4. A one-week currency swap with no forward leg

Explanation

An outright forward lets the treasurer fix the exchange rate now for settlement on a specified future date, removing rate uncertainty. A spot deal settles almost immediately and leaves later exposure open. Holding cash does not fix an exchange rate at all.