-
USD1m
annual cost savings
-
c.40%
release of onshore bandwidth
-
50%
more insight generated
Client Challenges
- The client wanted to develop an FX fair value model for major FX pairs to determine whether any currency pair was undervalued or overvalued compared to its long-term fair value.
- The bank also wanted to develop a quantitative method to predict how long would it take for the actual FX price to converge to its fair value
Our Approach
- Used a behavioural equilibrium exchange rate (BEER) approach
- Identified four significant predictors of FX rates
- Conducted cross-sectional OLS regression for individual FX pairs
- Conducted panel regression for G10 currencies
- Used the vector error correction model (VECM) to calculate speed of convergence to fair value and forecast foreign exchange rate movements
- Used R and Python for model development
Value delivered
- Developed a stable and robust FX fair value model to estimate fair value and predict FX price movements in the medium to long term
- Skilled manpower at a fraction of the global cost
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