Question

Bid Ask spread on currency quotation will be wider of the current exhibits more volatility than others because of the country's uncertain economic conditions

true or false?

Answer 1

The given statement is true

· Bid-ask spread refers to the difference between the highest price a buyer can pay and the lowest price a seller would accept for the product in a market

· Volatility is a measure of severity of rice changes for a security

· The bid-ask spread can be considered as a measure of supply and demand for a particular asset where the bid represents the demand and ask represents the supply.

· It can thus be seen that a further spread in the bid-ask pricing would cause fluctuations in the demand and supply in the market.

· The increase of depth between the bid and ask would widen the bid-ask spread. Also thinly traded stocks have a wider bid-ask spread.

· When an imminent risk is being expected in a market, the bid-ask price would widen further.

· The bid-ask price is also expected to be widened if certain limits are set on selling and buying patterns in a market.

· The variations in the bid-ask price is expected to be based on the liquidity of the asset and hence the bid-ask pricing can be used as a measure of liquidity in the economy.

· As the currency volatility increases, the market makers would try to take advantage in the market to increase the profits which would result in widening of the bid-ask spread