Question: Explain the logic behind the application of the purchasing power parity theory to explain changes in the spot exchange rate. A bid is the price

Explain the logic behind the application of the purchasing power parity theory to explain changes in the spot exchange rate.

A bid is the price in one currency at which a dealer will buy another currency. An ask is the price at which a dealer will sell the other currency. Dealers bid at one price and ask at a slightly higher price, making their profit from the spread between the prices. List and explain three reasons and factors that could make the spread small.

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