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

Time-series evidence yields estimates of the increase in the spread on the South African rand on days when riots, demonstrations, armed atta cks, and related deaths occur in South Africa. The cross-section evide nce demonstrates how spreads vary across 36 industrial and developing countries as spot rate volatility and country risk vary. Both the chan ges in the spread over time for particular countries and the changes i n the spread across the countries at a particular time appear to be si gnificantly related to countries' risk differences and exchange-rate v olatility.