What does the bid-offer spread signify in foreign exchange?

The bid-offer spread signifies the difference between the buying price (bid) and the selling price (offer or ask) of a currency. This spread is crucial in foreign exchange markets as it represents the cost of trading currencies. When an individual or institution wants to buy a currency, they will pay the higher asking price, while selling the currency will yield the lower bid price. The size of the bid-offer spread can indicate the liquidity of the currency pair; narrower spreads suggest higher liquidity and efficiency, while wider spreads may indicate lower liquidity or higher risk.

The other options, while related to various aspects of currency exchange, do not specifically define the bid-offer spread. For example, fees charged by providers for currency exchange can be influenced by the bid-offer spread but are not the spread itself. Similarly, interest rates pertain to the cost of borrowing and are not indicative of the bid-offer spread. The amount of foreign currency needed for a payment also does not relate directly to the spread, as it involves the operational aspects of currency transactions rather than the pricing dynamics captured by the bid-offer spread.