The foreign exchange market in a highly-open developing economy

Abstract The purpose of this paper is to examine the foreign exchange market of Singapore from the perspective of market-efficiency and further to determine if factors such as the unanticipated changes in interest rate differentials and purchasing power parity play a role in the behavior of the exchange rate using a variety of tests. It is shown that the Singapore market despite its relatively small size displays many of the same characteristics observed in the markets of developed countries. This is taken as a confirmation of the general nature of the ‘empirical regularities’ found in studies of such markets.