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FRM Part I · FRM Exam Part I · Foreign Exchange Markets

In the global foreign exchange market, which statement about market structure is most accurate?

The FX market is largely over-the-counter, with dealers quoting two-way bid and ask prices, and the US dollar is the most common vehicle currency. It has no single central exchange, and many participants besides central banks quote prices.

  1. AMost FX trading takes place on a single central exchange with a central clearing counterparty
  2. BThe FX market is largely over-the-counter, with dealers quoting two-way prices and the US dollar the most common vehicle currencyCorrect
  3. CSpot transactions dominate turnover by notional value, settling on the trade date
  4. DCentral banks are the only participants permitted to quote bid and ask prices

Explanation

FX trading is mainly OTC and dealer-based, with banks quoting bid and ask prices, and the US dollar is on one side of most trades. There is no single exchange, spot trades usually settle two business days later (T+2) for most pairs, and many participants quote prices, not only central banks.

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