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| Author: | Goodhart, C. |
| Title: | Analysis of spreads in the dollar/euro and deutschemark/dollar foreign exchange markets |
| Journal: | Economic Policy
2002 : OCT, 35, p. 535-552 |
| Index terms: | ANALYTICAL REVIEW DOLLARS EURO DEUTSCHMARKS FOREIGN EXCHANGE MARKET |
| Language: | eng |
| Abstract: | The authors compute bid-ask spreads for the dollar/euro exchange rate market and find them to be substantially larger than their deutschemark counterparts before introduction of the euro. The authors show that larger percentage spreads are not explained by volatility, trade intensity, and other standard explanatory variables in the authors' data sets. But the authors also show that spreads have not increased in terms of the unit ('pip') used in exchange rate quotations to the fourth decimal point. Since the euro is worth about two marks, and was initially worth more than a dollar, this finding suggests that larger percentage spreads reflect the more pronounced 'granularity' of quoting conventions in euro-dollar rather than dollar-mark trading. |
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