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Forex & Currency Markets Flashcards

7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Forex & Currency Markets flashcards as text

  1. What does 'purchasing power parity' (PPP) theory suggest about long-run exchange rates?

    Answer: Exchange rates adjust so that identical goods cost the same in different countries

    PPP theory holds that exchange rates should eventually equalize the price of a basket of goods across countries, reflecting relative inflation differences.

  2. A trader is long USD/JPY. Which scenario would result in a profit?

    Answer: The US dollar appreciates against the yen

    Being long USD/JPY means buying USD and selling JPY; the position profits when the USD appreciates relative to the JPY.

  3. What is 'slippage' in forex trading?

    Answer: The difference between the expected execution price and the actual fill price

    Slippage occurs when an order is filled at a different price than requested, typically during fast-moving markets or low liquidity periods.

  4. Which economic indicator is most closely watched for its impact on the USD in forex markets?

    Answer: US Non-Farm Payrolls (NFP)

    Non-Farm Payrolls, released monthly by the BLS, is the single most market-moving US economic release due to its implications for Fed monetary policy.

  5. What is the significance of a currency's 'reserve status'?

    Answer: Other countries hold it in large quantities to settle international trade and debt

    Reserve currencies are held by central banks worldwide for international transactions; the US dollar accounts for over 58% of global reserves.

  6. In the context of forex, what is 'rollover' (swap)?

    Answer: The interest credit or debit applied when a position is held overnight

    Rollover is the net interest (swap) paid or earned when a forex position is held past the daily settlement cutoff, based on the interest rate differential between the two currencies.

  7. Which statement about forex market liquidity is most accurate?

    Answer: Major pairs like EUR/USD are most liquid during the London–New York overlap

    Even though forex trades 24 hours, liquidity peaks during the London–New York overlap, giving major pairs their tightest spreads and deepest order books at that time.