University of Central Florida (UCF) GEB3375 Intro to International Business Practice Exam 2

The difference between the offer and bid price is known as the spread. In financial markets, the bid price refers to the maximum price that a buyer is willing to pay for a security, while the offer price (also referred to as the asking price) is the minimum price that a seller is willing to accept. The spread is a key metric in trading, indicating the liquidity of the asset; a narrower spread typically suggests that the asset is more liquid and that there is a high level of trading activity.

In the context of foreign exchange markets, for instance, understanding the spread is crucial for traders as it affects transaction costs and profitability. A wider spread often signifies less competitive pricing and potential volatility, while a tighter spread can be an indication of a more stable market. Thus, recognizing that the spread is the difference between the bid and offer prices is essential for anyone engaged in international business or trading.