Question

Which of the following is a false statement? Brokers are paid a fee for their agent services; dealers earn the bid-asked spread as principals in transactions. The more complex a security (which reduces the number of interested investors), the wider the bid-asked spread The less volatile the price of a security, the wider the bid-asked spread. Dealers bear the risk of price change during the search process; the customer bears the risk as the broker searches. none of these

Answer 1

Answer:

less volatile the price of a security, the wider the bid-asked spread.

Explanation:

From the answers listed in the question the one that would be considered false would be that the less volatile the price of a security, the wider the bid-asked spread. This is because the bid-asked spread usually depends on the liquidity of the asset, when the asset has a large enough liquidity which causes the volatility to be low the bid-asked spread becomes very narrow since there is not much demand for buyers willing to pay higher prices for the asset in question. The opposite occurs if an asset is very popular and volatility is high which creates a much wider bid-asked spread.