Question

When you buy currency at a U.S. bank, what rate applies to your purchase of a...

When you buy currency at a U.S. bank, what rate applies to your purchase of a foreign currency?

Select one:

a. bid rate and it is higher than ask rate

b. ask rate and it is higher than bid rate

c. bid rate and it is lower than ask rate

d. ask rate and it is lower than bid rate

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Homework Answers

Answer #1

Bid rate is the rate at which market will buy the base currency i.e. anyone can sell currency to the market at this rate.

Ask rate is the rate at which market is willing to sell the base currency i.e. anyone can buy the currency to the market at this rate.

For a market to operate profitably, it needs to sell at a higher rate than at which it buys. Therefore ask price is always higher than the bid price.

Thus if someone who is willing to buy foreign currency should look for ask rate of the currency and ask rate is higher than the bid rate.

Hence option (b) is correct.

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