A liquidity-pool based DEX uses a constant product function to determine the exchange rate at which currencies be exchanged.

True! The constant product function requires a liquidity trader wishing to exchange one currency into another currency to balance off added liquidity and withdrawn liquidity such that the product of both liquidities stay constant. The constant product function ensures that larger trades have a stronger impact on the exchange rates, ensuring that arbitrage traders bring prices back to market prices (1 point in case of 3 point question)