Bid-offer spread
The dealer's bid is the price it pays to buy the quoted base asset, and the offer is the price it charges to sell it. Currency quotations require careful identification of the base currency and units. Customers normally receive the less favourable side of the pair for their transaction. The spread compensates for dealing costs, risk and market conditions and is not itself an exchange-rate forecast. A wider spread increases transaction cost. Apply a consistent quote direction before comparing dealers or converting an exposure.
Worked example
A dealer quotes $1.2500–$1.2520 per £1. A customer selling £10,000 receives $12,500 at the dealer's bid. A customer buying £10,000 pays $12,520 at the offer. The difference is $20 for that amount.
Common mistake
Selecting the numerically larger rate for every receipt without first identifying which currency the dealer is buying.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |