General Securities Representative (Series 7) Practice Exam

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What currency do foreign currency options trade in?

  1. Euros

  2. British Pounds

  3. US Dollars ONLY

  4. Japanese Yen

The correct answer is: US Dollars ONLY

Foreign currency options primarily trade in US Dollars, as US Dollars serve as the standard currency for trading these options on most exchanges. This convention allows for greater liquidity and uniformity in transactions, as the US Dollar is widely accepted and recognized as the dominant global reserve currency. While foreign currency options can technically be structured and traded in other currencies such as Euros, British Pounds, or Japanese Yen, the most common practice is for these options to be quoted in US Dollars. This aligns with the typical market conventions found on exchanges like the Chicago Mercantile Exchange (CME), where foreign currency options are frequently listed. Hence, the focus on US Dollars ensures that traders have a consistent basis for pricing and trading these financial instruments, which is crucial for smooth operations in the foreign exchange market.