Abstract
Utilizing the method of generalized least squares (GLS), the paper investigates the factors which determine bid-ask spread in the foreign exchange (FX) market of Guyana. The econometric exercise is based on a rich dataset of trading volumes as well as the buying and selling exchange rates for each cambio (or trader) from January 2000 to December 2007. The main findings are: (i) a positive relationship between a measure of market power and spread; (ii) a positive relationship between hoarding of FX and spread; and (iii) a strong positive association between risk and spread. The key contribution of this paper to the literature is the evidence that traders have the ability to influence the BAS , and by extension the exchange rate.
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