Asked by Katie Moules on Jun 10, 2024
Verified
To earn profits,the market maker must
A) bid high,ask low
B) bid low,ask high
C) equalize the bid and ask price
D) not create the market
Market Maker
An individual or firm that continuously buys and sells securities in a financial market to ensure liquidity and stability of prices.
Bid
An offer made by an individual or company to buy a good, service, or asset at a specified price.
Ask
The lowest price a seller is willing to accept for an asset in financial markets.
- Comprehend the responsibilities and operations of a market maker within financial markets.
- Determine the bid-ask margins and evaluate the profitabilities of market intermediaries in diverse transaction environments.
Verified Answer
AR
Armelinda RiveraJun 12, 2024
Final Answer :
B
Explanation :
To earn profits, the market maker must bid low (to buy at a lower price) and ask high (to sell at a higher price). This creates a spread, which is the difference between the bid price and the ask price, and is where the market maker earns their profit. Therefore, option B, bid low and ask high, is the correct choice.
Learning Objectives
- Comprehend the responsibilities and operations of a market maker within financial markets.
- Determine the bid-ask margins and evaluate the profitabilities of market intermediaries in diverse transaction environments.
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