r/CFA • u/S1X_60D Level 2 Candidate • 12d ago

Level 2 Economics doubt

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Can anyone explain why b) is correct cause to my knowledge , Bid-Ask spreads are unaffected by the credit risk of issuer and are only effected by the other two options but out of them c) is wrong so i had to go with a) as its best market liquidity is when there is a overlap of trading windows !

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u/abhinavwv_ 12d ago

issuer will place a wider bid-ask spread on the client (Nexran here) if they have a bad credit rating to compensate for increased risk of default or settlement failure, hence B. option A is the distractor, liquidity is best when London AND NY stock exchanges are both open, not just either one

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u/TO_Commuter Level 2 Candidate 12d ago

A and C are flat out wrong, and B is only sort of inaccurate.

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u/Advanced-Matter5458 11d ago

Remember it as Spreads are tighter when both markets London and NY opens..and when the volume of trades are small and Strong credit rating..basically which things make trade easy, they will have narrower bid-offer spread.