Prospect Theory MCQs
What is the primary function of the foreign exchange market?
A) To provide loans
B) To facilitate international trade and investment
C) To sell commodities
D) To manage domestic interest rates
Answer: B) To facilitate international trade and investment
Which of the following is the largest financial market in the world?
A) Bond market
B) Stock market
C) Forex market
D) Commodity market
Answer: C) Forex market
What does “forex” stand for?
A) Foreign exchange
B) Financial exchange
C) Forward exchange
D) Futures exchange
Answer: A) Foreign exchange
Which currency pair is known as the “majors” in forex trading?
A) USD/JPY
B) EUR/USD
C) GBP/JPY
D) All of the above
Answer: D) All of the above
In forex trading, what does “pip” stand for?
A) Percentage in point
B) Price interest point
C) Price in point
D) Point in price
Answer: A) Percentage in point
What is a “cross currency pair”?
A) A currency pair that includes the US dollar
B) A currency pair that does not include the US dollar
C) A pair where both currencies are commodities
D) A pair where one currency is pegged
Answer: B) A currency pair that does not include the US dollar
What is a “spread” in forex trading?
A) The difference between the bid and ask price
B) The difference between two currencies’ exchange rates
C) The range of currency prices over a day
D) The cost of trading currency pairs
Answer: A) The difference between the bid and ask price
Which organization oversees the global foreign exchange market?
A) International Monetary Fund (IMF)
B) Federal Reserve
C) Bank for International Settlements (BIS)
D) World Bank
Answer: C) Bank for International Settlements (BIS)
What is a “forex broker”?
A) An institution that provides loans in foreign currencies
B) An intermediary that facilitates currency trading for clients
C) A government agency that sets exchange rates
D) A company that exchanges currencies at airports
Answer: B) An intermediary that facilitates currency trading for clients
Which of the following is NOT a major forex trading session?
A) Asian session
B) European session
C) North American session
D) South American session
Answer: D) South American session
What does “leverage” in forex trading refer to?
A) The ability to trade multiple currency pairs simultaneously
B) The use of borrowed funds to increase trading position size
C) The range of possible profits from a trade
D) The frequency of trading activity
Answer: B) The use of borrowed funds to increase trading position size
Which of the following is considered a “safe haven” currency?
A) British Pound
B) Australian Dollar
C) Swiss Franc
D) Mexican Peso
Answer: C) Swiss Franc
What is “arbitrage” in forex trading?
A) Buying and selling the same currency at the same time
B) Exploiting price differences between markets to make a profit
C) Speculating on future currency movements
D) Setting exchange rates for international trade
Answer: B) Exploiting price differences between markets to make a profit
What is a “limit order” in forex trading?
A) An order to buy or sell a currency at a specific price or better
B) An order to execute a trade immediately at the current market price
C) An order to cancel all open trades
D) An order to hold a trade for a specified time
Answer: A) An order to buy or sell a currency at a specific price or better
Which currency is often referred to as the “Greenback”?
A) Euro
B) Yen
C) British Pound
D) US Dollar
Answer: D) US Dollar
What is “short selling” in forex trading?
A) Buying a currency with the expectation of its value increasing
B) Selling a currency with the expectation of buying it back at a lower price
C) Holding a currency for a short period
D) Trading currencies with a low leverage ratio
Answer: B) Selling a currency with the expectation of buying it back at a lower price
What does “scalping” mean in forex trading?
A) Holding positions for long-term gains
B) Making numerous trades to capture small price movements
C) Investing in high-risk currencies
D) Trading only during major economic news releases
Answer: B) Making numerous trades to capture small price movements
What is a “carry trade”?
A) Buying a currency pair with high interest rates and selling one with low rates
B) Holding currencies for long-term gains
C) Trading currencies based on geopolitical events
D) Speculating on currency pairs with high volatility
Answer: A) Buying a currency pair with high interest rates and selling one with low rates
Which of the following is NOT a common forex trading strategy?
A) Trend following
B) Range trading
C) News trading
D) Arbitrage trading
Answer: D) Arbitrage trading
What is the “quote” currency in a forex pair?
A) The currency being bought
B) The currency being sold
C) The currency that is compared to the base currency
D) The currency that determines the exchange rate
Answer: C) The currency that is compared to the base currency
What does the term “bull market” refer to?
A) A market where currency prices are falling
B) A market where currency prices are rising
C) A market with high volatility
D) A market with low liquidity
Answer: B) A market where currency prices are rising
What is a “stop-loss order”?
A) An order to buy or sell a currency at the best available price
B) An order to close a trade at a specific price to limit losses
C) An order to open a new position in the market
D) An order to hold a trade until the market conditions improve
Answer: B) An order to close a trade at a specific price to limit losses
Which of the following is NOT a major currency in the forex market?
A) Euro
B) US Dollar
C) Canadian Dollar
D) Indian Rupee
Answer: D) Indian Rupee
What does “volatility” mean in forex trading?
A) The number of trades executed in a market
B) The rate at which currency prices change over time
C) The liquidity available in the market
D) The stability of a currency’s value
Answer: B) The rate at which currency prices change over time
What is “fundamental analysis” in forex trading?
A) Analyzing price charts and historical data
B) Assessing economic indicators and news events
C) Using mathematical models to predict currency movements
D) Reviewing the technical aspects of trading platforms
Answer: B) Assessing economic indicators and news events
Which economic indicator measures the rate at which prices of goods and services are rising?
A) GDP
B) CPI
C) PMI
D) Unemployment Rate
Answer: B) CPI (Consumer Price Index)
What is a “currency swap”?
A) A trade involving two different currencies at a specified future date
B) An exchange of one currency for another at the current market rate
C) A contract where two parties exchange cash flows in different currencies
D) An option to buy or sell currency pairs at a future date
Answer: C) A contract where two parties exchange cash flows in different currencies
Which of the following is a type of forex order?
A) Stop-limit order
B) Market order
C) Limit order
D) All of the above
Answer: D) All of the above
What does “speculation” mean in forex trading?
A) Trading currencies based on the current market price
B) Trading currencies based on predicted future movements
C) Holding currencies for long-term investments
D) Buying and selling currencies to make quick profits
Answer: B) Trading currencies based on predicted future movements
Which forex trading strategy involves buying and holding a currency pair for an extended period?
A) Day trading
B) Swing trading
C) Position trading
D) Scalping
Answer: C) Position trading
What does the term “base currency” refer to?
A) The currency used to quote the exchange rate
B) The currency being compared to the quote currency
C) The currency that is used for international trade
D) The currency that is most traded in the market
Answer: B) The currency being compared to the quote currency
What is a “forward contract” in forex?
A) An agreement to buy or sell currency at a future date at a predetermined price
B) A trade executed at the current market price
C) A contract to exchange currencies at a future date without specifying the price
D) A trading strategy to profit from short-term currency movements
Answer: A) An agreement to buy or sell currency at a future date at a predetermined price
What is the “Bid” price in forex trading?
A) The price at which a trader is willing to sell a currency
B) The price at which a trader is willing to buy a currency
C) The price set by the central bank
D) The highest price of a currency for a specific period
Answer: B) The price at which a trader is willing to buy a currency
What is a “margin call” in forex trading?
A) A request to increase the trading position size
B) A notification that a trader’s account balance is insufficient to cover margin requirements
C) A call from the forex broker to discuss trading strategies
D) A call to close a profitable position
Answer: B) A notification that a trader’s account balance is insufficient to cover margin requirements
What is “technical analysis” in forex trading?
A) Analyzing currency values based on economic news
B) Using statistical tools and chart patterns to forecast currency movements
C) Assessing political stability to predict currency trends
D) Reviewing historical interest rates to make trading decisions
Answer: B) Using statistical tools and chart patterns to forecast currency movements
What does “overbought” mean in technical analysis?
A) A currency is undervalued and expected to rise
B) A currency is valued higher than its historical average and may fall
C) A currency has reached a stable price level
D) A currency is in a strong uptrend
Answer: B) A currency is valued higher than its historical average and may fall
What is the role of central banks in the forex market?
A) To set exchange rates directly
B) To influence currency values through monetary policy
C) To trade currencies on behalf of private investors
D) To facilitate international trade by setting global rates
Answer: B) To influence currency values through monetary policy
Which of the following is a type of forex trading account?
A) Standard account
B) Mini account
C) Micro account
D) All of the above
Answer: D) All of the above
What does “leverage ratio” in forex trading indicate?
A) The amount of capital required to open a trade
B) The amount of borrowed funds used to increase position size
C) The profit margin from each trade
D) The ratio of trading activity to market liquidity
Answer: B) The amount of borrowed funds used to increase position size
What does the term “liquidity” refer to in the forex market?
A) The speed at which a currency can be traded
B) The ease with which a currency can be converted into cash
C) The amount of available cash for trading
D) The frequency of currency price changes
Answer: B) The ease with which a currency can be converted into cash
What is “price action” in forex trading?
A) The process of analyzing economic news to predict currency movements
B) The movement of currency prices over time
C) The process of adjusting trading strategies based on market trends
D) The historical performance of a currency pair
Answer: B) The movement of currency prices over time
What does “correlation” mean in forex trading?
A) The relationship between two currency pairs’ price movements
B) The similarity in trading strategies used by different traders
C) The impact of news events on currency values
D) The effect of economic indicators on currency trading
Answer: A) The relationship between two currency pairs’ price movements
Which of the following is NOT a method to analyze currency markets?
A) Fundamental analysis
B) Technical analysis
C) Sentiment analysis
D) Quantitative analysis
Answer: D) Quantitative analysis
What is the “US Dollar Index (DXY)”?
A) An index measuring the performance of the US Dollar against a basket of foreign currencies
B) An index representing the value of the US Dollar against the Euro
C) An index tracking the volatility of the US Dollar
D) An index showing the trading volume of the US Dollar
Answer: A) An index measuring the performance of the US Dollar against a basket of foreign currencies
Which term describes the act of buying and selling a currency pair multiple times in a short period?
A) Position trading
B) Swing trading
C) Day trading
D) Scalping
Answer: D) Scalping
What is “slippage” in forex trading?
A) The difference between the expected price of a trade and the actual executed price
B) The delay in executing a trade order
C) The cost of trading fees
D) The amount of capital used in a trade
Answer: A) The difference between the expected price of a trade and the actual executed price
Which type of analysis uses economic indicators to forecast currency movements?
A) Technical analysis
B) Fundamental analysis
C) Sentiment analysis
D) Price action analysis
Answer: B) Fundamental analysis
What is the primary risk associated with high leverage in forex trading?
A) Higher transaction costs
B) Increased exposure to market volatility and potential losses
C) Greater need for technical analysis
D) Increased slippage
Answer: B) Increased exposure to market volatility and potential losses
Which forex trading strategy involves making decisions based on market news and economic reports?
A) Technical trading
B) Fundamental trading
C) Sentiment trading
D) Algorithmic trading
Answer: B) Fundamental trading