The global markets for foreign exchange are vast, growing, and diverse along several dimensions, including transaction type, market participants, and currency characteristics. One result of this diversity is that investors who convert foreign currency can choose among several alternative methods, each with specific costs and benefits. Cornerstone Research staff and our affiliated experts have an in-depth understanding of the complexities of foreign exchange markets, including the determinants of transaction costs, and have studied the relative costs of execution methods available to investors.
Our work in litigation involving foreign exchange markets and transactions includes the following.
- We analyzed a large database of foreign exchange transactions executed by a bank to determine whether any transactions were priced outside the daily contractual limits set by the bank. We compared the costs of executing foreign exchange transactions via different trading arrangements while controlling for factors that influence trading costs.
- In another case, we analyzed more than one million records of foreign currency trades and reconciled hundreds of trades against trade confirmations and account statements. We priced foreign exchange options and forward positions, tracked traders’ profit and loss and risk exposures over several years, and analyzed the consistency of actual exposures with stated strategies.
- In a class action involving the valuation of foreign exchange forward options in a company’s risk management portfolio, we worked with an expert to analyze the company’s foreign exchange portfolio. We valued the foreign exchange derivatives during the class period, analyzed the payoff pattern of exotic derivatives compared with “plain vanilla” derivatives, calculated exposure to movements in the exchange rate, and determined whether the exposure was within contractual limits.
- For major financial institutions, we valued large portfolios comprising foreign exchange and other derivatives, addressing valuation, transaction cost, risk management, and other issues.
- In a breach of contract dispute involving a foreign exchange advisor and argued before the London Court of International Arbitration, we worked with an expert to analyze the comparative performance of the foreign exchange advisor’s trading strategy and conducted analyses of its assets under management.