The presence of the bid-offer spread in foreign exchange transactions:
A) reduces the profitability of speculation, because speculators buy at the offer rate and sell at the bid rate
B) raises the profitability of speculation, because speculators buy at the bid rate and sell at the offer rate
C) does not affect the profitability of speculation, since speculators face a zero bid-offer spread
D) raises the profitability of speculation, because speculators buy at the offer rate and sell at the bid rate

Question

Quizplus · Accepted Answer

The bid-offer spread in foreign exchange transactions reduces the profitability of speculation because speculators must buy currency at the higher offer rate and sell at the lower bid rate, which narrows their potential profit margins.

The Presence of the Bid-Offer Spread in Foreign Exchange Transactions