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The evolution of trading activity in Asian foreign exchange markets

Author

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  • Yosuke Tsuyuguchi
  • Philip D Wooldridge

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.

Suggested Citation

  • Yosuke Tsuyuguchi & Philip D Wooldridge, 2008. "The evolution of trading activity in Asian foreign exchange markets," BIS Working Papers 252, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:252
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    Cited by:

    1. Anella Munro & Philip Wooldridge, 2011. "Motivations for swap-covered foreign currency borrowing," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 19-56, Bank for International Settlements.
    2. YV Reddy, 2012. "Summary of the discussion," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial sector regulation for growth, equity and stability, volume 62, pages 39-40, Bank for International Settlements.
    3. repec:ind:icrier:257 is not listed on IDEAS
    4. Patrick McGuire & Ilhyock Shim & Hyun Song Shin & Vladyslav Sushko, 2021. "Outward portfolio investment and dollar funding in emerging Asia," BIS Quarterly Review, Bank for International Settlements, December.
    5. Sutsarun Lumiajiak & Sirimon Treepongkaruna & Marvin Wee & Robert Brooks, 2014. "Thai Financial Markets and Political Change," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 5-26, July.
    6. Maria Socorro Gochoco-Bautista & Jianxin Wang & Minxian Yang, 2014. "Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies," The World Economy, Wiley Blackwell, vol. 37(6), pages 811-833, June.
    7. Robert N McCauley & Chang Shu & Guonan Ma, 2014. "Non-deliverable forwards: 2013 and beyond," BIS Quarterly Review, Bank for International Settlements, March.
    8. Suresh Ramanathan & Kian-Teng Kwek, 2013. "The twin faces of emerging Asia's currency forward markets in an imperfect setting," Applied Financial Economics, Taylor & Francis Journals, vol. 23(18), pages 1433-1446, September.
    9. Nikhil Patel & Dora Xia, 2019. "Offshore markets drive trading of emerging market currencies," BIS Quarterly Review, Bank for International Settlements, December.
    10. Stefanescu, Razvan & Dumitriu, Ramona, 2013. "Impact of the foreign exchange rates fluctuations on returns and volatility of the Bucharest Stock Exchange," MPRA Paper 47229, University Library of Munich, Germany, revised 04 Apr 2013.
    11. 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.
    12. Torsten Ehlers & Frank Packer, 2013. "FX and derivatives markets in emerging economies and the internationalisation of their currencies," BIS Quarterly Review, Bank for International Settlements, December.
    13. He, Dong & Yu, Xiangrong, 2016. "Network effects in currency internationalisation: Insights from BIS triennial surveys and implications for the renminbi," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 203-229.
    14. Ying-Sing Liu, 2021. "The Impact of Trading Information Sets on Exchange Rate Change and Volatility: Evidence From Taiwan," SAGE Open, , vol. 11(4), pages 21582440211, November.
    15. Carol Osler & Xuhang Wang, 2012. "The Microstructure of Currency Markets," Working Papers 49, Brandeis University, Department of Economics and International Business School.
    16. Mashkoor, Asim & Ahmed, Ovais & Herani, Dr. Gobin, 2015. "The relationship between Foreign Currency trading and Economic Development: A case Study of Pakistan," MPRA Paper 64482, University Library of Munich, Germany.

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    More about this item

    Keywords

    foreign exchange; trading volume; currency controls;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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