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Funds Transfer Pricing | Banks [Video]

Funds Transfer Pricing | Banks

Banks have a lot of different business units, and management would like to be able to evaluate each business unit as an independent profit center. This would allow the bank, for example, to compare the performance of its residential mortgage unit to its credit card unit.

But there’s a problem.

The bank’s treasury department manages the liability side of the balance sheet and therefore incurs interest expense, while the bank’s business units make loans that generate interest income.

Thus, how do you evaluate the profit of the treasury department if it has no interest income? And how do you evaluate the profit of a business unit (e.g., commercial lending) if that unit incurs no interest expense?

This is where funds transfer pricing comes into play.

Funds transfer pricing is the process of allocating the cost of funds (interest expense) to business units and allocating interest income (from loans, credit cards, etc.) to the treasury department.

This permits each business unit to be treated as an independent profit center.

To determine the cost of funds for different business units, the treasury department would create a cost of funds curve (FTP curve) that represents the current costs of raising funds. A higher cost of funds would be assigned to business units that have riskier products.

Funds transfer pricing is thus a mechanism for allocating interest income and expense so that each business unit can be evaluated for its net interest margin.

The allocation of interest expense and interest income to business units is purely for internal use and performance evaluation; it doesn’t affect the financial statements reported to investors.

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Resources for Accountants

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Negotiating is a valuable skill that can help you achieve your goals in various aspects of life, from business deals to personal relationships. To excel in negotiations, it's crucial to be well-prepared. This guide will walk you through the steps to prepare effectively for successful negotiations.Get free business and management guides, tools, and worksheets at: https://www.bizmove.com

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All set to enhance your Accounting & Finance career with a US CPA course? Know all about the eligibility before you get started.Watch this video to know more!#ThinkCPAThinkSimandhar #cpa #uscpa #cpaexaminIndia #cpaevaluation"Simandhar Education will help you ace the CPA, CMA, EA, CIA, and IFRS certifications. For any further information regarding the courses, you can feel free to reach out to our expert counselors at 𝟕𝟕𝟖𝟎𝟐𝟕𝟑𝟑𝟖𝟖. Drop your Details: https://bit.ly/3wf2fD4 ------------------***-----------------***---------------------***---------------------***-----------------------𝗔𝗯𝗼𝘂𝘁 𝗦𝗶𝗺𝗮𝗻𝗱𝗵𝗮𝗿 𝗘𝗱𝘂𝗰𝗮𝘁𝗶𝗼𝗻Simandhar Education is a leading training provider for US CPA, US CMA, CIA, EA, and IFRS. Simandhar Education always believes in transforming education and providing high standards of learning to the students. We are the channel partner of AICPA and the official partner of Becker Education, the most acclaimed CPA reviewer in the USA. We believe in imparting information and concentrate on grooming individuals and make them fit for the corporate world. The academy provides quality education with more emphasis on practical knowledge. Simandhar Education has a wide network of world-class trainers, teachers, and industry experts, and all the teachers at Simandhar are CPA qualified and rank holders. We also provide guaranteed placement support to the students and personal grooming sessions for the interviews. "𝗦𝗶𝗺𝗮𝗻𝗱𝗵𝗮𝗿 𝗔𝗰𝗵𝗶𝗲𝘃𝗲𝗺𝗲𝗻𝘁𝘀Simandhar education has over 3000 enrolled students and has successfully placed more than 200 students across reputed firms. We have a team of 10 leading faculties and have effectively conducted 100+ corporate events in the CPA/ CMA domain. Contact Us: +91- 7780273388 or leave a message on social media.Make sure to hit the like, share and subscribe to our YouTube channel.To get more updates on the YouTube Channel click: http://bit.ly/2Mt2BB1Now you can listen to our podcast at https://bit.ly/36PYQPP ------------------------------- 𝐅𝐨𝐥𝐥𝐨𝐰 𝐮𝐬 -----------------------------------Make Sure to follow us on our Social Media Channels:Podcast: https://bit.ly/36PYQPPInstagram: https://zcu.io/TNgDLinkedin: https://bit.ly/2Oh9w5dFacebook: https://zcu.io/gDvXTwitter: https://zcu.io/17cSThink CPA / CMA - Think Simandhar

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Entrepreneurship Mistakes from Hell | How to Start a Startup [Video]

Embarking on the journey of entrepreneurship is akin to riding a roller coaster blindfolded—it's exhilarating, unpredictable, and fraught with potential pitfalls. While mistakes are an inevitable part of the entrepreneurial journey, some are more catastrophic than others. These "mistakes from hell" can derail even the most promising ventures, leaving entrepreneurs reeling and searching for ways to recover. Let's explore some of these missteps that have the potential to turn an entrepreneurial dream into a nightmare.

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