FOREIGN EXCHANGE MARKET BID--ASK SPREADS AND THE MARKET PRICE OF SOCIAL UNREST

Time-series evidence yields estimates of the increase in thespread on the South African rand on days when riots, demonstrations,armed attacks, and related deaths occur in South Africa. Thecross-section evidence demonstrates how spreads vary across36 industrial and developing countries as spot rate volatilityand country risk vary. Both the changes in the spread over timefor particular countries and the changes in the spread acrossthe countries at a particular time appear to be significantlyrelated to countries' risk differences and exchange-rate volatility.