Does the credit rating of the company affects the size of the spread charged by the dealer?In the candidate resource i found 2 qts with contradicting statements
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Here I am trying to explain you query.
Yes, the credit rating of a company can affect the size of the spread charged by the dealer.
The spread is the difference between the bid price and the ask price of a security or financial instrument. Dealers use the spread to make a profit on their transactions.
When a company has a high credit rating, it is considered more creditworthy and less risky for investors. As a result, investors are more willing to buy the company’s bonds or other securities, and the demand for those securities increases. This increased demand can lead to a decrease in the spread charged by dealers, since they can sell the securities more easily and may not need to offer as large a discount to attract buyers.
Conversely, when a company has a low credit rating, it is considered less creditworthy and more risky for investors. This can lead to a decrease in demand for the company’s securities, which can result in dealers increasing the spread they charge to sell those securities to compensate for the added risk.
In summary, the credit rating of a company can affect the spread charged by dealers as it is an important indicator of the company’s creditworthiness and perceived risk by investors.