CFA CFA Global Markets & Trading 2

Question 1

Which type of market structure uses a central counterparty to match buy and sell orders?

Accepted Answer

Exchange-traded market (order-driven market)

Answer

Exchange-traded markets use a centralized order book where buyers and sellers are matched through a formal exchange with standardized rules.

Question 2

The efficient market hypothesis (EMH) in its strong form states that:

Accepted Answer

All public and private information is already reflected in stock prices

Answer

The strong form of EMH holds that even insider information is incorporated into asset prices, making it impossible to consistently earn excess returns.

Question 3

Dark pools in equity markets are best described as:

Accepted Answer

Private trading venues where large block orders can be executed anonymously

Answer

Dark pools are private exchanges or forums for trading securities without displaying orders publicly, often used by institutional investors to minimize market impact.

Question 4

Currency carry trade involves:

Accepted Answer

Borrowing in a low-interest-rate currency and investing in a high-interest-rate currency

Answer

The carry trade exploits interest rate differentials between countries by borrowing cheaply in one currency and investing where yields are higher.

Question 5

Which settlement cycle is standard for US equity trades as of 2024?

Accepted Answer

T+1 (one business day after trade date)

Answer

The US moved to T+1 settlement for equities in May 2024, reducing counterparty and systemic risk compared to the previous T+2 standard.

CFA Practice Test

CFA Practice Test

CFA CFA Global Markets & Trading 2