Suppose the spot and forward bid-ask rates for the South African rand/Ghana cedi (ZAR/GHS) exchange rate at a particular today are as follows: Period ZAR/GHS Bid Rate ZAR/GHS Ask Rate Spot 3.0815 3.1817 1-month 3.0813 3.1818 6-months 3.0624 3.1630 12-months 3.0396 3.1404 i. Given the above information, determine the % bid-ask spread for all the maturities. (4 marks)
ii. Briefly discuss the determinants of bid-ask spreads in foreign exchange markets, and explain why you would normally expect the percentage bid–ask spread on the forward rates to increase with the maturity of the forward contract.