Practice Test Geeks(CPT) Certified Pro Trader Practice Test
← All CPT Flashcard Decks

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 distinguishes a 'hard peg' exchange rate regime from a 'soft peg'?

    Answer: A hard peg fixes the rate with no fluctuation band; a soft peg allows movement within a band

    Under a hard peg (currency board or dollarization), the rate is fixed with no deviation allowed; a soft peg (crawling peg, managed float) allows limited fluctuation around a central rate.

  2. How does quantitative easing (QE) typically affect a country's currency?

    Answer: QE tends to weaken the currency by expanding the money supply and lowering yields

    QE injects money into the economy and suppresses yields, making the currency less attractive to yield-seeking investors and generally causing depreciation.

  3. A trader uses a 1:50 leverage ratio on a $2,000 account. What is the maximum position size they can control?

    Answer: $100,000

    At 1:50 leverage, a $2,000 account can control $2,000 × 50 = $100,000 in notional value.

  4. What is the primary function of the forex forward market?

    Answer: To lock in an exchange rate today for a transaction that will occur at a future date

    Forward contracts allow businesses and investors to hedge against future currency risk by agreeing on an exchange rate now for settlement at a specified future date.

  5. Which concept explains why two countries with different interest rates may not see indefinite capital flows to the higher-rate country?

    Answer: Covered Interest Rate Parity

    Covered Interest Rate Parity (CIP) states that the forward premium or discount on a currency offsets the interest rate differential, eliminating riskless arbitrage.

  6. What does a 'currency swap' involve in the forex market?

    Answer: An agreement to exchange principal and interest payments in different currencies over a set period

    A currency swap involves exchanging principal and fixed or floating interest payments in one currency for those in another currency over an agreed term, commonly used by corporations to manage long-term FX exposure.

  7. If the USD/CAD spot rate is 1.3600 and Canada raises interest rates unexpectedly, what is the most likely immediate effect?

    Answer: USD/CAD falls because the Canadian dollar appreciates

    Higher Canadian interest rates attract capital inflows into CAD, increasing demand for the Canadian dollar and causing USD/CAD to fall (fewer CAD needed per USD).