1. Identify the one false statement about bid/ask spreads:

   1. The bid-ask spread increases in the liquidity of the currency that you transact in,

      i.e., the more liquid a foreign currency the higher the bid-ask spread.

   2. The terms bid and ask are from the perspective of the bank, i.e., the bank bids an amount of home currency for one unit of foreign currency and the bank asks

      an amount of home currency for one unit of foreign currency.

   3. The bid-ask spread increases in the time-to-maturity of a forward contract, i.e.,

      the longer the time-to-delivery the higher the bid-ask spread.

   4. As the customer of a bank, you always transact at the less favourable rate, i.e., you

      buy at the ask rate and you sell at the bid rate.

   5. When the currency you transact in is in the denominator (as is always the case in

      our textbook), the bid rate is lower than the ask rate.

2. Identify the one false statement about the current banking system:

   1. In foreign exchange markets, a market maker in one currency pair is a commercial

      bank obliged to state a bid and an ask rate for this currency pair

   2. As foreign exchange markets are de-centralized, you can always buy or sell foreign

      currency during working days, even on, e.g., Thursday 1am.

   3. In foreign exchange markets, foreign exchange dealers always state the name

      instead of the dimension of the currency pair they want to trade in.

   4. The wholesale tier of the foreign exchange markets consists exclusively of a

      number of large commercial banks.

   5. At each point in time, the limit order book shows the best bid and ask quote.

Please answer the questions above.