SIE Exam Question 658: Answer and Explanation

Question: 658

Which of the following describes the relationship between a security's bid-ask spread and its liquidity?

• A. In general, the smaller a security's bid-ask spread, the better its liquidity.
• B. In general, the larger a security's bid-ask spread, the better its liquidity.
• C. The bid-ask spread effects a security's marketability, but not its liquidity.
• D. There is no relationship between a security's bid-ask spread and its liquidity.

Correct Answer: A

Explanation:

In general, the smaller a security's bid-ask spread, the better its liquidity.