In the forward market the bid-ask spreads begin to ________ as the maturity date of the contract grows closer.

Question

Quizplus · Accepted Answer

Bid-ask spreads in the forward market refer to the difference between the price at which buyers are willing to purchase a financial asset (bid) and the price at which sellers are willing to sell (ask). As the maturity date of the contract grows closer, the uncertainty about the future value of the asset increases, leading to a wider bid-ask spread. This is because buyers and sellers require more compensation for taking on the risk of holding the asset over a more uncertain period. Therefore, choice A) widen is the correct answer.

In the Forward Market the Bid-Ask Spreads Begin to ________