A decrease in the bid-offer spread in the exchange rate leads to:

Question

Quizplus · Accepted Answer

A decrease in the bid-offer spread in the exchange rate reduces the cost of executing foreign exchange transactions, which can lead to a decline in the effective financing rate. This is because the bid-offer spread represents the cost of executing a round-trip transaction (buying and then selling, or vice versa) in the foreign exchange market. A narrower spread means lower transaction costs, which can improve the effective rate at which funds are financed.

A Decrease in the Bid-Offer Spread in the Exchange Rate