Internal Funds Transfer Pricing
This is the concluding part of the two part series on Internal Funds Transfer Pricing. As mentioned earlier, funds transfer pricing, or FTP, is the process of using market rates to value both users of funds and providers of funds, independently of each other. In this part, we check out some of the popular practices for transfer pricing of a few special products.
Rules Vs. Discretion
There are two ways in which markets can be regulated – one is the good old rules based approach where a regulator clearly spells out the dos and don’ts and the institution follows it. The other is the discretionary approach, where the regulator qualifies an institution to use self assessment for compliance to regulations. Both these approaches have their own merits. However, in the wake of the current crisis, regulators and academicians around the world are debating the merits of rules versus discretion as a regulatory framework, and which of them will lead to a more stable financial system. Attention is also being focused on the institutional details that shape implementation and impact efficacy of either of the approaches.