What Are Interbank Exchange Rates?

October 22, 2021

The foreign exchange market is the largest financial market in the world—and it’s understandably complex.

Working with international clients and suppliers means having to make regular foreign exchange (FX) conversions, and if this sounds familiar you’ll want to make sure you’re getting the best rates you can. But researching and finding the best FX provider can be challenging since rates differ between banks, suppliers, and FX providers. 

To get the best rates and make sure you’re not overspending on FX, it’s essential to know how the interbank exchange rate works, how it affects FX rates, and being aware of any additional charges on top.

Understanding the interbank exchange rate

Simply put, the interbank exchange rate is the rate banks use to trade foreign currency between themselves. Banks analyse live currency exchange rates and take the mid-point between the buy and sell rates to determine the interbank rate. However, there’s no one agree upon interbank rate and the rates vary depending on the bank, currency, market, and even the time of day.

Percentages and fees for FX

Businesses typically don’t receive the interbank exchange rate and usually get a blended rate taken from a mix of live exchange rates, market data, and the differences between banks. Banks usually mark up the interbank rate by 4% to 6% and although this doesn’t sound like much, these small percentages add up when you’re exchanging large sums of money.

FX brokers charge a markup on their bid-ask spread (where they bought the currency and from and how much they’re selling it on for). This is typically a small percentage to cover their costs, but when you’re exchanging large volumes markups can add up and affect your bottom line. For instance, let’s say you regularly exchange $100,000 and the markup is 1%. Each transaction will cost you $1,000, and if you’re doing this several times a year, a month, or even a week it adds up to a lot of money you’re actively losing.

Navigate FX with Baanx

Baanx takes the headache out of navigating the complex world of FX exchange. We enable businesses to send and receive foreign currencies directly from within our app and use our service as a white-label solution for their users to exchange foreign currencies too. Our app has over 50 countries and 20 currency pairs available, and our FX rate is as close to the interbank rate as possible so you can add a flat or viable fee on top for your users.

Get in touch with us to discuss how our FX rate works, and how we can help your business navigate the world of FX exchange and how we can build a white-label FX solution for your users.