bid-offer spreads

CFA Level II
#1

Question from topic test Economics-Nexran:

1, should see the best market liquidity for euro trades when London opens for trading.

2, company’s strong credit rating should enable it to get tighter bid-offer quotes from dealers.

The size of the bid offer spread depends on the liquidity in the market. Therefore, FX markets are most liquid when major FX trading centers are open. Why statement 1 is incorrect?

Why statement 2 is correct? The size of the bid offer spread should depend on the currency pair involved, the time of day, market volatility, size of the transaction and relationship between the deal and client. It is nothing about credit rating.

#2

From the CFAI Curriculum : “A client’s credit risk can also be a factor. A client with a poor credit profile may be quoted a wider bid–offer spread than one with good credit. Given the short settlement cycle for spot FX transactions (typically two business days), however, credit risk is not the most important factor in determining the client’s bid–offer spread on spot exchange rates.”

The first statement is a little ambiguous and hopefully the real exam wont be that way. The most liquid time frame is when multiple large exchanges are open. I believe that when London opens, the NYSE is still closed. Its kinda a trick question.

#3

Thank you.