Why Are the Bid-Ask Spreads Larger in the Forward Market

question 29

Multiple Choice

Why are the bid-ask spreads larger in the forward market than in the spot market?

• A) because the forward market is less liquid than the spot market
• B) because the spot market is more volatile than the forward market
• C) because the forward market is more liquid than the spot market
• D) because the spot market is less liquid than the forward market

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Definitions:

Benevolent Social Planner

A theoretical construct representing an entity or policymaker that aims to achieve the most efficient and equitable outcomes for society as a whole, often seen in economic models.

Socially Efficient

A condition where resources are allocated in a way that maximizes the overall benefit to society, taking into account all externalities.

Marginal Revenue

The additional income obtained from selling one more unit of a good or service, critical in determining the optimal level of production for a firm.

Profits Maximize

The process or strategy by which a firm seeks to achieve the highest possible return or benefit from its operations and resources.