First, examine the degree of the swap market's segmentation, which is measured by the absolute exchange rate differentials between the FEACs' swap rates.
Of the six inter-regional MADs, the northern-eastern regional MAD is the smallest, suggesting that FEACs in these two regions are more integrated than are FEACS in the remaining regions.
Finally, the analysis compares relative levels of the 12 FEACs' swap rates.
Informational and administrative barriers apparently continued to cause substantial differences in the FEACs' swap rates across the country.
This subsection examines the causal relationship between the 12 FEACs' swap rates and the three reference centers - namely Beijing, Shanghai, and Shenzhen.
t-ratio of the differentials between own-region MADS(2) NN EE SS WW NN EE 2.46(***) SS 2.38(***) 3.56(***) WW 0.05 -1.43 1.27 1 The upper figure of each cell in panel I is the MAD between the column region X and row region [Mathematical Expression Omitted] where n = number of FEACs in region X m = number of FEACs in region Y [MAD.sub.ij] = mean absolute differential between swap center i in region X and swap center j in region Y The lower bracketed figure of each cell in panel I is the t statistics of the MAD between the column and row regions.
This counter-intuitive result probably reflects that foreign exchange supplies in smaller FEACs usually were tighter than those in larger, more well-developed FEACs.
First, the nationally unified market rate has eliminated the persistent differentials among different FEACs' swap rates.
The old system required importers to obtain both trade approval and authorization to purchase foreign exchange from their local FEACs. The new system allows importers to purchase foreign exchange from any DFEB once they obtain trade approval.
Under the FEACs system, most tradings were in the form of retention quotas instead of cash.