Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963628 | Journal of International Financial Markets, Institutions and Money | 2008 | 13 Pages |
Abstract
This article examines how differently the same dealer quotes in the inter-dealer and customer foreign exchange markets that have different market structures. The model first predicts that customer spreads are generally wider than inter-dealer ones due to less transparency in the customer market. The model also predicts that since customers are believed to be less informed than dealers, the differential between customer and inter-dealer spreads tends to fall with the rise in order sizes. In addition, the dealer's mid-quotes are shown to be the same in the two markets. Empirical evidence based on data collected from a FX dealer supports these theoretical findings.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Liang Ding,