Encuesta dirigida a viajeros usuarios del SENAE en el Distrito Huaquillas

During the Asian crisis, bid-ask spreads for Asian emerging market currencies increased sharply. Therefore, it is interesting to see the behavior of the spreads for the three exchange rates we examine in this study. Becker and Sy (2005) show that the costs associated with a US$10 million roundtrip transaction before and during the crisis period for the different Asian currencies that they analyze in their paper increased dramatically. They report for example, that “for the Indonesian rupiah, the cost increased from a moderate US$8,000 pre-crisis to a cross-section high of US$215,900 during the crisis”. Such levels and swings in the costs of currency transactions have a significant impact on both micro- and macroeconomic variables.

Section 5.6.1: Quoted daily spread summary statistics

Table A5.1 (appendix 5) shows that for both the JP/US and GB/US exchange rates, the mean spread increased only by a small amount during the Asian crisis (Period 2 sample) for the UK, US and Asia time zones. In particular spreads increased between 5.6% (JP/US, in US time zone) and 17% (GB/US, in Asia time zone) when the three time zones are considered. These results are consistent with Martin (2003) who examined a sample of 21 emerging and developed country currencies to evaluate the impact of the Asian crisis on currency bid-ask spreads. She reports that none of the developed countries show significant changes in spreads. This may have resulted from downward pressure on spreads due to predictable flight to quality volume that offset the upward pressure on spreads due to increased volatility.

For both the JP/US and GB/US exchange rates, the mean spread (UK, US and Asia time zones) in the period after the Asian crisis is lower or slightly lower than in the period before the crisis. Finally, the JP/US and GB/USD exchange rates have their highest and lowest mean quoted spread values in the same sub

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samples (Period 2 and Period 3 respectively) and in the same time zones (UK time zone for both the highest and the lowest mean spread).

Looking at the standard deviation of the spreads (appendix 5, Table A5.1), we can observe that the period with the highest spread volatility is Period 3 of our sample. In particular, for the JP/US and GB/US spreads in all time zones the volatility in almost all cases is double than in the period after the Asian crisis (Period 3). It is interesting to notice that during Period 2, which is the period that covers the Asian crisis, the spreads have the lowest volatility. Period 3 provides the opportunity to compare more directly the volatility of all spreads since the euro started trading on the January 01, 2001. As with the full sample, the EU/US spread is less volatile than the other two rates in Period 3.

Section 5.6.2: Relative daily spread

Relative spreads allow the direct comparison among the spreads of different exchange rates. Therefore, the most interesting comparison is for the 3rd period of our sample where the spreads of the three exchange rates can be compared. For the first period of the sample I observe a common pattern in the movement of the spread for the JP/US and the GB/US exchange rates. The JP/US spread was in most cases higher than the GB/US spread with the mean value in all time zones to be around 33 percent higher. The difference was wider for the first year of our sample (1995 –1996) where in many cases the JP/US spread was more than double than GB/US spread. For example on the 22.06.1995 the JP/US spread was 0.0004 and the GB/US spread 0.00014. In the first period for all time zones the spread for JP/US peaked on the 14.04.1995 and for the GBP/US on the 10.04.1995 with the exception of UK time zone where the peak occurred on 17.04.1005 for the GBP/US.

Looking at Graphs 5.10, 5.11 and 5.12 we can see that for the second period of my sample the difference of the spread between the JP/US and the GB/US was

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higher in the last quarter of 1998 in all time zones. In particular the JP/US spread increased considerably from 07.10.1998 and for the next few days reaching a pick on the 12.10.1998 in the UK and US time zones. Around these dates occurred many important economic events, such as the Japan’s announcement of a $30 billion aid package for Southeast Asia to help the region recover from recession, the IMF and World Bank joint plenary session to debate the global economic crisis and the interest rates cut by the Fed to prevent weak financial markets from tripping the US into a recession.

In the third period of the sample, we can see that both the spreads and the difference between the US/JP spread and the GB/US spread narrowed in all time zones (Graphs 5.10, 5.11, 5.12). The downward trend for the spreads began in different periods when different time zones are considered. In particular, in the UK time zone spreads were fluctuating around 0.00025 and 0.0003 for the JP/US and around 0.0002 and 0.00025 for the GB/US in 1999. From 2000, there was a consistent downward trend. Although the situation is similar in the US and Asia time zones, with lower spreads for both e/r, though the downward trend began only after early 2001.

The introduction of the euro currency on 01.01.2001 allows the comparison of the spreads of all three exchange rates from the date of introduction to the 31.01.2005. Results show that the EU/US spread was higher (in all time zones) on average than the JP/US and GB/US spreads for more than two years after the introduction of euro. However, after the 1st quarter of 2003 and until the end of our sample the EU/US spread in most cases was lower than the US/JP spread. Moreover, the EU/US spread decreased considerably during the first half of 2001, when it was fluctuating around 0.0002 until the end of 2004, when it was fluctuating around 0.0001. Last but not least, for all currency pairs under consideration and in all time zones, the spreads peaked in most cases on Christmas and New Years Eve (and around these days).

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