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Answer: The dealer/client relationship
## Explanation Factors affecting bid-ask spreads in foreign exchange transactions: - **Currencies involved (Option A)**: CAD/CZK is an uncommon pairing, which would typically lead to **wider** spreads due to lower liquidity - **Transaction size (Option B)**: 250,000 CAD is relatively small, which would typically lead to **wider** spreads as dealers need to cover fixed costs - **Dealer/client relationship (Option C)**: An established relationship with a client who regularly uses the dealer's services for equity and fixed income transactions would most likely lead to **tighter** spreads Dealers are more willing to offer competitive (tighter) spreads to valuable clients with whom they have ongoing relationships, as they can make up for narrower spreads through other business and long-term relationship benefits.
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A dealer regularly handles equity security trades and fixed income transactions for a retail client. The client requests a currency transaction for 250,000 Canadian dollars (CAD) and Czech korunas (CZK), an uncommon pairing and a relatively small transaction size. The dealer prepares a bid/ask quote for the client. Which of the following factors would most likely lead to a tighter spread between the bid and ask for the transaction?
A
The currencies involved
B
The size of the transaction
C
The dealer/client relationship