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The evolution of trading activity in Asian foreign exchange markets

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  • Yosuke Tsuyuguchi
  • Philip D Wooldridge
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    Abstract

    The development of Asian foreign exchange markets has progressed appreciably in recent years. Data from the BIS Triennial Central Bank Survey indicate that the turnover of Asian currencies rose sharply between 2004 and 2007, financial institutions became more important customers, and the participation of non-residents increased. Notwithstanding this progress, the liquidity of Asian foreign exchange markets continues to be undermined by foreign exchange controls. For Asian currencies other than HKD and SGD, non-residents account for a relatively small share of activity and FX swap markets are still in their infancy. Offshore non-deliverable markets have developed in response to controls, causing trading activity to fragment. Furthermore, Herstatt risk remains high in Asian foreign exchange markets. Almost all transactions between Asian currencies are executed via the US dollar so, for those trades not cleared through CLS Bank, each leg is settled at significantly different times.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 252.

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    Length: 33 pages
    Date of creation: May 2008
    Date of revision:
    Handle: RePEc:bis:biswps:252

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    Keywords: foreign exchange; trading volume; currency controls;

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    References

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    1. Krugman, Paul, 1980. "Vehicle Currencies and the Structure of International Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 513-26, August.
    2. Gabriele Galati & Philip D. Wooldridge, 2006. "The euro as a reserve currency: a challenge to the pre-eminence of the US dollar?," BIS Working Papers 218, Bank for International Settlements.
    3. Disyatat, Piti & Galati, Gabriele, 2007. "The effectiveness of foreign exchange intervention in emerging market countries: Evidence from the Czech koruna," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 383-402, April.
    4. Hartmann,Philipp, 2007. "Currency Competition and Foreign Exchange Markets," Cambridge Books, Cambridge University Press, number 9780521046930, October.
    5. Guonan Ma & Corrinne Ho & Robert N McCauley, 2004. "The markets for non-deliverable forwards in Asian currencies," BIS Quarterly Review, Bank for International Settlements, June.
    6. Naohiko Baba & Frank Packer & Teppei Nagano, 2008. "The spillover of money market turbulence to FX swap and cross-currency swap markets," BIS Quarterly Review, Bank for International Settlements, March.
    7. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," IEHAS Discussion Papers 0304, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    8. Jacob Gyntelberg & Philip Wooldridge, 2008. "Interbank rate fixings during the recent turmoil," BIS Quarterly Review, Bank for International Settlements, March.
    9. Jacob Gyntelberg & Eli M Remolona, 2007. "Risk in carry trades: a look at target currencies in Asia and the Pacific," BIS Quarterly Review, Bank for International Settlements, December.
    10. Guy Debelle & Jacob Gyntelberg & Michael Plumb, 2006. "Forward currency markets in Asia: lessons from the Australian experience," BIS Quarterly Review, Bank for International Settlements, September.
    11. Jacques Miniane, 2004. "A New Set of Measures on Capital Account Restrictions," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 4.
    12. Michael J. Sager & Mark P. Taylor, 2006. "Under the microscope: the structure of the foreign exchange market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(1), pages 81-95.
    13. Gabriele Galati & Alexandra Heath, 2007. "What drives the growth in FX activity? Interpreting the 2007 triennial survey," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:
    1. Ahmad, Rubi & Rhee, S. Ghon & Wong, Yuen Meng, 2012. "Foreign exchange market efficiency under recent crises: Asia-Pacific focus," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1574-1592.

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