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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
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
- Given the above information, determine the % bid-ask spread for all the maturities.
- 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.
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