THE CURRENT STATE OF FINANCIAL INTEGRATION OF THE ASIAN CURRENCY MARKET WITH WORLD MARKETS

Abstract

To determine the current state of financial integration of the Asian curreny market with world markets, the spreads in the Asian dollar market are compared to the spreads in the Euro dollar market using the paired-difference t test. One hundred and four weekly data points are collected over a period of two years from the first week in 1987 to the last week in 1988. The pairs of spreads are collected for dollar-deposits of six maturity durations ranging from seven days to twelve months. As a secondary test, the interest rates quoted in the Asian dollar market are similarly collected and compared to the interest rates quoted in the Euro dollar market for the same period. This test is used as a secondary substantiation of the spreads test because of the data collection limitation where only the closing rates in the two markets are available. The results show that for all maturity durations, the difference in spreads quoted in the Asian dollar market and the Euro dollar market is not significant at 2-tail 5% level of significance. Therefore the null hypothesis of financial integration cannot be rejected. However, the result for the test on the interest rate differential does not support the above conclusion and I believe that it is because of the data limitation.