Forex Trading Advanced Topics 2

Question 1

What does the term 'carry trade' refer to in forex?

Accepted Answer

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

Answer

Trading currency futures on an exchange

Answer

Holding a position overnight to avoid swap fees

Answer

Using leverage to amplify intraday gains

Question 2

Which risk most directly threatens a carry trade position?

Accepted Answer

Sharp reversal of the high-yield currency

Answer

Spread widening

Answer

Rising broker commissions

Answer

Increased trading volume

Question 3

In forex options, what does 'delta' measure?

Accepted Answer

Sensitivity of option price to a $1 move in the underlying

Answer

Time decay of the option premium

Answer

Implied volatility change

Answer

Change in delta per unit change in the underlying

Question 4

What is 'gamma' in the context of forex options?

Accepted Answer

The rate of change of delta with respect to the underlying price

Answer

The sensitivity of an option to interest rate changes

Answer

The annualized standard deviation of returns

Answer

The time value remaining in an option

Question 5

A trader opens a USD/CHF long position and simultaneously sells USD/JPY. This is an example of what strategy?

Accepted Answer

A synthetic cross-rate trade

Answer

Hedging correlated pairs

Answer

Statistical arbitrage

Answer

A momentum breakout

Question 6

What is the primary purpose of a currency swap agreement between two central banks?

Accepted Answer

To provide emergency liquidity in a foreign currency

Answer

To earn profit from interest rate differentials

Answer

To speculate on exchange rate movements

Answer

To eliminate trade imbalances

Question 7

Which of the following best describes 'vega' in forex options trading?

Accepted Answer

Sensitivity of option premium to changes in implied volatility

Answer

The rate at which time value decays

Answer

The probability the option expires in the money

Answer

The cost of delta-hedging the position