A wide bid/ask spread could indicate which of the following? A) the presence of

Question

A wide bid/ask spread could indicate which of the following? A) the presence of arbitrageurs B) large volume transaction are taking place C) frequent trading of the current F) an efficient market A wide bid/ask spread could indicate which of the following? A) the presence of arbitrageurs B) large volume transaction are taking place C) frequent trading of the current F) an efficient market A) the presence of arbitrageurs B) large volume transaction are taking place C) frequent trading of the current F) an efficient market

Explanation / Answer

Correct choice - A. The presence of arbitrageurs

B is incorrect as large number of transactions should lower the spread as there will be more number of participants in the market.

C is incorrect. Usually frequently traded securities tend to have lower spread due to presence of large number of participants

F is incorrect as wide spread is a sign of inefficient market.

A is correct. Some players can take advantage of wide spread and start arbitrage to earn money.

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