CPT Forex & Currency Markets 2

Question 1

What does the 'spread' represent in a forex quote?

Accepted Answer

The difference between the bid and ask price

Answer

The spread is the difference between the bid (selling) price and the ask (buying) price, representing the broker's transaction cost.

Question 2

Which of the following best describes a 'carry trade' in forex?

Accepted Answer

Borrowing in a low-interest-rate currency to invest in a high-interest-rate currency

Answer

A carry trade involves borrowing in a low-yielding currency and investing in a higher-yielding one to profit from the interest rate differential.

Question 3

What is the role of the Bank for International Settlements (BIS) in forex markets?

Accepted Answer

It acts as a central bank for central banks and publishes forex market surveys

Answer

The BIS serves as a bank for central banks, fosters monetary cooperation, and publishes the authoritative triennial survey of global forex market turnover.

Question 4

If EUR/USD is quoted at 1.1050/1.1052, what is the cost to buy €100,000?

Accepted Answer

$110,520

Answer

To buy euros you pay the ask price of 1.1052, so €100,000 × 1.1052 = $110,520.

Question 5

In forex terminology, what is a 'cross pair'?

Accepted Answer

A currency pair that does not include the US dollar

Answer

A cross pair (or cross rate) is any currency pair that does not involve the US dollar, such as EUR/GBP or AUD/JPY.

(CPT) Certified Pro Trader Practice Test

(CPT) Certified Pro Trader Practice Test

CPT Forex & Currency Markets 2