The bid-ask spread: a. Includes a transaction cost component to compensate liquidity providers for their operational costs b. Includes an adverse selection component to compensate liquidity providers for the risk of trading with informed traders c. Includes a bid-ask bounce component to compensate liquidity providers for volatility d. (a) & (b) e. (a), (b) & (c)

The bid-ask spread: a. Includes a transaction cost component to compensate liquidity providers for their operational costs b. Includes an adverse selection component to compensate liquidity providers for the risk of trading with informed traders c. Includes a bid-ask bounce component to compensate liquidity providers for volatility d. (a) & (b) e. (a), (b) & (c)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter2: Financial Reporting: Its Conceptual Framework

Section: Chapter Questions

Problem 10GI: Define (a) return on investment, (b) risk, (c) financial flexibility, (d) liquidity, and (e)...

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	a.	Includes a transaction cost component to compensate liquidity providers for their operational costs
	b.	Includes an adverse selection component to compensate liquidity providers for the risk of trading with informed traders
	c.	Includes a bid-ask bounce component to compensate liquidity providers for volatility
	d.	(a) & (b)
	e.	(a), (b) & (c)