Foreign Exchange Cost Benchmarking

A statistical model is used to ‘grade’ the rate achieved for each trade within the observed trading range for its currency pair in the interbank market on the day of execution. The distribution of these grades is then compared with the expected normal distribution to calculate a statistically significant estimate of cost (over and above the inevitable cost of carrying out trades in the wholesale interbank market). This calculation represents the spread applied by the FX provider together with any other unexplained excess cost. The core analysis will cover spot trades, broken down into trades between major/liquid currency pairs (“trade” executions) and trades involving less important or liquid currencies (“non-trade” executions).

Key metrics

  • The implied cost of FX transactions over and above the unavoidable interbank market spreads, expressed in basis points of the total value of FX traded.
  • Implied FX costs will be analysed for correlation with the value and volume of FX trading within the investor’s peer group.

Change in Implied FX Cost with Monitoring

Benefits

  • Thomas Murray IDS's experience invariably shows a reduction in the cost of FX execution, often by as much as half.
  • Identify a peer group average and compare an investor’s level of FX transaction costs with the peer group.
  • Investors can use the benchmark to negotiate better rates from the FX provider.

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