Argentino is looking to invest some of his cash in silver or sell some of his...

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Argentino is looking to invest some of his cash in silver or sell some of his silver holdings for cash, depending on market conditions.

Argentino goes to his nearest exchange and finds that market maker #1 quotes him ($21, $23).

What is the price which Argentino would have to pay to buy an ounce of silver from market maker #1?

What is the price at which Argentino could sell an ounce of silver to market maker #1?

Suppose that Argentino believes that there might be better pricing from a different market maker. So, he approaches market maker #2, from whom he gets a quote of ($21.5,$24)

If makers #1 & #2 are the only market makers in the local silver market, what is the market spread on silver that Argentino faces?

3. Argentino is looking to invest some of his cash in silver or sel some of his silver holdings for cash, depending on market conditions. a. Argentino goes to his nearest exchange and findst hat market maker #1 quotes him ($21, $23) What is the price which Argentino would have to pay to buy b. What is the price at which Argentino could sell an ounce of silver to market maker #1? c. Suppose that Argentino believes that there might be better pricing from a different market maker. So, he an ounce of silver from market maker #17 approaches market maker #2, from whom he gets a quote of ($21.5524) If makers #1 & #2 are the only market makers in the local silver market, what is the market spread on silver that Argentino faces?

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Answer 1

Answer #1

Answer a:

Quote given is ($21, $23)

Hence, price Argentino would have to pay to buy an ounce of silver from market maker #1 is = $23

Answer b:

The price at which Argentino could sell an ounce of silver to market maker #1 is $21

Answer c:

Market spread is the difference between bid price and ask price.

Assuming maker # 1 and maker #2 as the only market makers in local market, if Argentino wants to sell he should ideally sell to maker #2 at $21.50 and if he wants to buy he should ideally buy from maker #1 at $23.

So from Argentino’s viewpoint spread he faces is ($23 - $21.50=) $1.50

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