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Determinants of the Bid ask Spread Forward Foreign Exchange Contracts

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  • W B Cornell

    (University of Southern California)

Abstract

The bid-ask spread on forward contracts determines, in part, the effectiveness of the foreign exchange market as a vehicle for hedging exchange risk. The purpose of this paper is to try to explain the variation in the spread over time and across currencies by examining the costs and risks banks face when dealing in foreign exchange. The paper also attempts to define the proper risk measure for open forward position in foreign exchange.© 1978 JIBS. Journal of International Business Studies (1978) 9, 33–41

Suggested Citation

  • W B Cornell, 1978. "Determinants of the Bid ask Spread Forward Foreign Exchange Contracts," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 9(2), pages 33-41, June.
    • Handle: RePEc:pal:jintbs:v:9:y:1978:i:2:p:33-41
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    Cited by:

    1. Mr. Torbjorn I. Becker & Mr. Amadou N Sy, 2005. "Were Bid-Ask Spreads in the Foreign Exchange Market Excessive During the Asian Crisis?," IMF Working Papers 2005/034, International Monetary Fund.
    2. Simpson, Marc W. & Grossmann, Axel, 2014. "An examination of the forward prediction error of U.S. dollar exchange rates and how they are related to bid-ask spreads, purchasing power parity disequilibria, and forward premium asymmetry," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 221-238.
    3. Becker, Torbjorn & Sy, Amadou, 2006. "Were bid-ask spreads in the FX market excessive during the Asian crisis?," International Review of Financial Analysis, Elsevier, vol. 15(4-5), pages 434-449.
    4. Gabriele Galati, 2000. "Trading volumes, volatility and spreads in foreign exchange markets: evidence from emerging market countries," BIS Working Papers 93, Bank for International Settlements.
    5. Gabriele Galati, 2001. "Trading volumes, volatility and spreads in FX markets: evidence from emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 197-229, Bank for International Settlements.
    6. Saida Gtifa & Naoufel LIOUANE, 2013. "Bid-ask spread, order size and volatility in the foreign exchange market: an empirical investigation," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(12), pages 267-275.

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