Explanation:
Factors affecting bid-ask spreads in foreign exchange transactions:
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
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