Question

percentage bid/ask quotes will be higher:
a. for a currency with lower volatility
b. for a currency with lower liquidity
c. for euros compared to turkish liras
d. at an investment bank like Goldman sachs compared to a local bank

Answer 1

Answer- The correct answer is option - b.for a currency with lower liquidity.

Bid-ask quotes are higher for higher volatility. The market index average daily price changes is closely related to the market level volatility.

The difference between in the selling price (bid price )and the buying price ( ask price)constitutes a bid -ask spread ,which reflects the transaction cost of trading .

The simple version of bid-ask spread is the absolute or quoted spread, calculated the difference between the lowest ask price and higher bid price .Absolute spread are always positives and their lower value is the tick size .

A higher price changes suggested lower liquidity .so,the higher the ratio ,the lower the liquidity and possibly the lower the depth due to the greater impact of large transaction on the price and the lack of high volume transactions with tight spreads.