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Spot and forward bid-ask rates for the south african

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Reference no: EM132410940

Suppose the spot and forward bid-ask rates for the South African rand/Ghana cedi (ZAR/GHS) exchange rate at a particular today are as follows:

Period

Spot 1-month 6-months

12-months

ZAR/GHS Bid Rate

3.0815 3.0813 3.0624

3.0396

ZAR/GHS Ask Rate

3.1817 3.1818 3.1630

3.1404

  1. Given the above information, determine the % bid-ask spread for all the maturities.
  2. Briefly discuss the determinants of bid-ask spreads in foreign exchange markets, and explain why you would normally expect the percentage bid-ask spread on the forward rates to increase with the maturity of the forward contract.

Reference no: EM132410940

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