Analytical Model Toward Fund Transfer Pricing: An Approach Toward Sustainable Accounting

Monetary economics is a subject wherein academic theories and practitioner market experience often seem widely divorced; the determination of the stock of money (Chapter 6) and the operation of foreign exchange markets (Chapter 18) are but two examples. Analysis of the determination of the level of money market interest rates is, alas, another. Accordingly, in this chapter, we try to weave together both practical market experience and more abstract theoretical considerations.We start in Section 1 with a factual restatement of Central Bank operations. On a day-to-day basis, the determination of the level of market interest rates is a relatively simple affair; the level is set by Central Bank intervention in money markets to balance the market’s desire for cash (high-powered money). The authorities could, in principle, choose to control the quantity of high-powered money instead, but, because of the short-run inelasticity of the market’s demand for cash, they have not generally chosen to do so. Even in those examples (e.g., Switzerland and the American Federal Reserve Board between 1979 and 1982) when there have been some forms of operation tending in this latter direction, these operations have incorporated safety valves to prevent excess instability in interest rates. An account of how these systems worked in practice is given in the Appendix at the end of this chapter.Nevertheless, any attempt to hold market interest rates constant over any sustained period of time would soon cause more general economic instability; over such long periods of time, the Central Bank sees its ability to influence interest rates constrained by a set of more important political, expectational and real factors to which it has to react continuously. In this context, the adoption of pragmatic monetary targets has allowed such reactions to become more flexible. The inter-relationship between the level of money market rates, set in the short term by the authorities, and rates on longer maturities is discussed in Chapter 11.Whereas the authorities actually set interest rates in the short run so that the money stock becomes an endogenous variable, most academic analysis of the determination of the rate of interest assumes that the authorities fix the level of the money stock. In Section 2, the theoretical determination of interest rates and the market demand and supply equilibrium of money are discussed. We start with the Neo-classical Theory in which all markets clear perfectly and instantaneously and claim that, in these conditions, monetary disequilibrium is reflected in and adjusted away by general changes in prices; the real interest rate is a function of real variables (e.g., productivity and thrift) and nominal interest rates incorporate an expectation of future inflation (the Fisher effect) plus the real interest rate.If markets are imperfect, however, with labour and goods markets adjusting slower than financial asset markets, then there will be an initial ‘liquidity preference’ effect on both nominal and real interest rates. Keynes exaggerated the importance of the ‘liquidity preference’ effect, relative to the longer-term ‘loanable funds’ theory of interest, in order to differentiate his approach from the Classical. This led to an invalid concentration upon a small set of financial interest rates as providing the sole means of short-term equilibration of the demand and supply of money and, similarly, the sole transmission channel for monetary policy.Nevertheless, the process of determination of interest rates does depend on the degree of market imperfection in the time horizon under consideration. As already noted, in the short run, the market rate of interest is determined by the balance between demand and supply of high-powered money. This determines both the market interest rates payable on bank deposits and charged for bank loans. The demand for money is not the same as the demand for bank credit, as will become clear in Section 3 which discusses the banks’ balance sheet. I argue that the general acceptability of money means that some sub-sets of bank deposits are used as buffer stocks, adjusting passively in the short run to fluctuations in the demand for bank credit; fluctuations in bank credit demand, therefore, rule the monetary roost.This turns out to cause problems for monetary controllers, since such credit demand has proved unpredictable and unresponsive to interest-rate fluctuations. Rather than vary interest rates drastically to influence bank credit demand, the monetary authorities in the UK have sometimes sought to compress bank lending to the public sector. The resulting practical problems of ‘overfunding’ and the ‘bill mountain’ in 1980–5 are recorded.

This paper selects quarterly data of 10 commercial banks in China (including 5 large state-owned commercial banks and 5 joint-stock commercial banks) for the 10 years from 2011 to 2020 for the study, and constructs a mixed cross-sectional regression model through multiple covariance test and heteroskedasticity test to empirically analyze the relationship between interest rate marketization and liquidity risk of commercial banks in China, and draws the following conclusions: First,interest rate First, the market-oriented reform will greatly increase the liquidity risk level of commercial banks. Second, the interest rate market reform gives heterogeneity to the liquidity risk of large state-owned commercial banks and joint-stock banks. Third, the effect of bank size on commercial banks' liquidity risk is not significant. Fourth, monetary and quasi-monetary growth rates move in the same direction as commercial banks' liquidity risk.

To administer the Canadian Income Tax Law, Canada is divided into nineteen districts. The districts are irregular in shape and of different areas. Their shape was influenced by the desire to have a district follow the railway lines. Recognition was given also to the main centres and provinces. In the beginning, sub-offices were required to serve the people, but experience has shown that they are not a necessity and most of them have been closed. The districts have remained unchanged for about ten years. Each is in charge of an inspector directly responsible to Ottawa.The amount of the revenue collected in each district is not a true criterion of the wealth of the particular district. Some small districts have the head office of a few large corporations in them. The district of London, Ontario, for instance, has in it such companies as the Ford Motor Car and Imperial Oil. Their income is derived from world-wide sources. Consequently on a revenue collection basis the district appears to have more wealth in it than it really has. It is the same with Toronto and Montreal.Usually a company files and pays its tax in the district where it has its head office, although the business of the company may be located in some other district. For example, the mines of northern Ontario are located in the Ottawa district but their corporate head offices are in Toronto, so they file and pay their taxes there. There is not any compulsion to pay in any particular district. Districts are established for the convenience of the public and returns can be filed in the district most convenient for the taxpayer.

With the continuous deepening of interest rate market reform, how to break through the blockage of market interest rate transmission to loan interest rates has become a new challenge for fund transfer pricing. A single combination of loan interest rates and market interest rates tends to ignore their respective problems. At present, LPR interest rates are difficult to form a good interaction with policy interest rates. At the same time, the high volatility of market interest rates cannot adapt to the cost of deposits and loans. Therefore, we eliminates the high volatility peaks of market interest rates, and integrates market interest rates and LPR interest rates through a neural network model to construct an internal fund transfer pricing benchmark curve. Commercial banks can make adjustments based on their own development needs and give full play to the role of FTP in the transmission of interest rates.

In his writings, John Maynard Keynes never developed a proper and systematic theory of the business cycle. However, the Treatise on Money and the General Theory include substantial indications on which it is possible to rely in order to explain the macroeconomic emergence and persistence of economic fluctuations. The only obstacle lies in the apparent contradictory elements which are present in Keynes’s works: according to the post-Wicksellian viewpoint of the Treatise, the emphasis is put on the divergence between the natural and the market rates of interest and on its effects upon the demand for credit, while the General Theory stresses the role of human psychology (including on the stock exchange) in the determination of investment decisions.

최근 주택 가격 하락, 정부의 가계대출규제 강화 등으로 주택담보대출에 집중된 국내 은행권의 대출포트폴리오가 다각화 방향으로 변화할 것으로 예상된다. 국내 은행권의 대출포트폴리오 다각화가 수익성에 미칠 전망을 판단하는 데 있어, 해외선행연구들에서는 상이한 결과들을 제시하고 있다. 본 연구는 국내의 은행 수익성을 전망하고, 학문적 쟁점을 검증하기 위해 대출포트폴리오 다각화와 수익성간 관련성을 실증 분석했다. 주요 분석결과로서, 첫째, 은행 대출포트폴리오 다각화 수준이 높을수록 총자산대비 이익률, 위험가중자산대비 이익률은 모두 높게 나타났다. 둘째, 대출포트폴리오의 다각화 수준에 따라 국내 은행 수익성에 미치는 영향력은 소유구조에 따라 차별적이지 않았다. 외국계 은행의 경우 자산운용의 다각화가 수익성을 낮춘다는 Nguyen (2018)의 주장은 확인되지 않았다. 셋째, 시장금리, 주택가격 변화율은 은행 수익성을 결정하는 주요 영향요인이었다. 즉, 낮은 시장금리, 높은 주택가격상승률이 은행 수익성 제고에 기여하였다. 결론적으로 향후 국내 은행들의 대출포트폴리오 다각화 경향은 수익성 제고에 기여한다고 판단된다. 하지만, 주택가격 하락, 시장금리 상승세는 은행 수익성을 제고하는 데 부정적으로 작용될 전망이다.It seems that the diversification of loan portfolio, concentrating on housing loan, is enhanced because of the drop in house price and the tight household loan regulation. However, different results are suggested by foreign studies in forecasting the effect of diversification of loan portfolio on Korean bank profitability. Thus, current study examined empirically the relationship between loan diversification and bank profitability to confirm the academic issue and to forecast the Korean banks’ profitability. Main findings are as follows. First, the higher loan diversification level is, the higher return on asset and return on risk weighted asset are. Second, the effect of loan diversification on bank profitability is not different according to bank ownership structure. The argument of Nguyen (2018), mentioning that profits of foreign banks tend to be decreased when loan diversification is enhanced, is not confirmed. Third, market interest rate and the change rate in house price are main influential factors in determining bank profitability. Low interest rate and high house price can help to enhance bank profits. Finally, it is estimated that loan diversification in Korean banks make their profitability enhanced but low house price and high interest rate negatively affect their profitability.

This paper shows how a move to a more logically based transfer pricing system enabled a vertically integrated tissue company to review and fundamentally change its external marketing strategy, with substantial resulting improvements in both profitability and employee motivation. A key element in the new transfer pricing system was the identification of the real limiting resource constraint on the business which, in this case, did not agree with the basis on which internal transfer prices and some external selling prices had traditionally been established. The new financial, and consequent managerial, emphasis on the effective utilization of this key limiting factor led to a significant reallocation of resources across the product mix, due to the considerable changes caused in relative selling prices of different products. The more general issues raised by this paper concern the focus of marketing accounting information systems which, in many companies, are being made ever more sophisticated and yet no more relevant to the key decisions facing senior marketing managers.

Multinational companies faced with an uncertain world are notorious for centralising control of their far flung empires to the extent that local decision making becomes a matter of managers merely executing orders rather than showing creativity or initiative in solving issues. Control can be best exerted by standardising processes and centralising responsibility for decision making. Enterprise resource planning (ERP) systems are a perfect vehicle for such centralising forces, imposing a common way of doing business across the organisation, and simultaneously providing a head office with centralised control of those practices. On the other hand, these highly integrated systems exacerbate rather than resolve the managers’ information deficit problems. Though providing a high level of granularity of transactional data, they fail to assist managers in controlling business performance to predefined targets. Taking the material purchasing department of a manufacturing multinational as an example, this article studies the impact of ERP-enabled centralisation on day to day decision making of managers both at a local plant and at corporate head office (HQ). Although huge improvements in data integrity at an operational level (inventory, procurement, standardisation of codes, prices, and so forth) have made local cost control much more robust, local managers have sacrificed the ability to investigate these costs. As prices are set centrally by commodity teams, local managers have been disempowered with respect to leveraging purchase price variance (PPV) and quality in their relationships with suppliers. Furthermore, they are asked to implement radical cost saving programmes without disturbing the availability of raw materials for production. From a local point of view, managers do not have a say in the setting of targets, and do not have the tools (or know how) to work with the detailed transactional data in the ERP system to be able to understand cost drivers. HQ, on the other hand, gain in visibility of local costs, and typically make no change to integrate their own planning applications, retaining legacy tools and interfaces. This article examines the apparent imbalance between the price paid by local materials buyers, namely a huge bureaucratic overhead, and the benefit derived by corporate purchasing.

Testing for credit rationing: An application of disequilibrium econometrics

Investing in the capital market is an alternative for people who want to invest their excess funds as well as being able to drive the economy in a country. This study aims to obtain empirical evidence regarding the determinants that influence investment interest in the capital market. Determination of the sample in this study using purposive sampling method with a sample of 105 students who have taken the capital market theory course and already have an account of effects. The data analysis technique used is multiple linear regression analysis. The results of the study indicate that investment understanding, motivation, and the bandwagon effect have a positive effect on investment interest in the capital market. This means that the higher the understanding of investment, motivation, and the bandwagon effect phenomenon that occurs, the higher the interest in investing in the capital market.
 Keywords: Investing Interest; Investment Understanding; Motivation; Bandwagon Effect.

This paper reviews the monetary transmission mechanism in low-income countries (LICs). We use the standard description of monetary transmission as a benchmark to identify aspects of the transmission mechanism that may operate differently in LICs. In particular, the paper focuses on the effects of financial market structure on monetary transmission. The weak institutional framework prevalent in LICs drastically reduces the role of securities markets. Consequently, traditional monetary transmission through market interest rates and market-determined asset prices are weak or nonexistent. The exchange rate channel, in turn, tends to be undermined by heavy central bank intervention in the foreign exchange market. The weak institutional framework also has the effect of increasing the cost of bank lending to private firms. Coupled with imperfect competition in the banking sector, this induces banks to maintain chronically high excess reserves and to invest in domestic public bonds or (when possible) in foreign bonds. With the financial system not intermediating funds properly, the bank lending channel also becomes impaired. These factors undermine both the strength and reliability of monetary transmission, which has important implications for the conduct of monetary policy in LICs.

This paper reviews the monetary transmission mechanism in low-income countries (LICs). We use the standard description of monetary transmission as a benchmark to identify aspects of the transmission mechanism that may operate differently in LICs. In particular, the paper focuses on the effects of financial market structure on monetary transmission. The weak institutional framework prevalent in LICs drastically reduces the role of securities markets. Consequently, traditional monetary transmission through market interest rates and market-determined asset prices are weak or nonexistent. The exchange rate channel, in turn, tends to be undermined by heavy central bank intervention in the foreign exchange market. The weak institutional framework also has the effect of increasing the cost of bank lending to private firms. Coupled with imperfect competition in the banking sector, this induces banks to maintain chronically high excess reserves and to invest in domestic public bonds or (when possible) in foreign bonds. With the financial system not intermediating funds properly, the bank lending channel also becomes impaired. These factors undermine both the strength and reliability of monetary transmission, which has important implications for the conduct of monetary policy in LICs.

We study the roles of the head office (HO) and the business units (BUs) of a multinational corporation (MNC) in reducing income tax and tariff payments through internal transfer prices in international trades. Using confidential transfer price data of a large MNC, we analyze how the different elements of internal transfer prices set by the HO and BUs vary differently from external prices with income tax rates, tariff rates, and the tradeoff between the two. Absent severe agency conflicts, we find that the BUs contribute more to tax planning than the HO, despite that explicit incentives to do so are not included in the compensation schemes. The roles of the HO and BUs vary with product market competition, the risk of conflicts with tax and customs authorities, and agency problems within the firm. Moreover, we provide evidence of strategic trade cost allocations among BUs to reduce income taxes.

This paper is the first which studies extreme risk factor movements of Euro Area sovereign bonds, whose prices are largely determined by risk factors representing interest rate risk, credit risk and market liquidity risk. Starting model independently from fundamental no-arbitrage relationships, we disentangle the government bonds' yields into a risk-free rate, the government's credit spread as well as its country - or even instrument-specific market liquidity spread for bonds with five years to maturity. At first, univariate extreme value theory (EVT) is applied to each member state individually to examine the distributional characteristics of extreme risk factor returns (tail risk) during the recent financial market crises between 2008 and 2016. Furthermore, the paper analyzes multivariate risk factor dependencies for each member state. We calculate joint exceedance probabilities for high quantiles for each of the three bivariate risk factor combinations and estimate dependence parameters of various, mainly extreme-value copulas for increasing thresholds to study tail dependence. Finally, we test the goodness-of-fit of the estimated parametric copulas and conclude which copula works best in modelling extremal dependence between interest rate risk, credit risk, and market liquidity risk factor changes during severe financial market turmoil.

This paper studies the risk spillover among US Industrial Sectors and focuses on the connection between credit and liquidity risks. The proposed methodology is based on quantile regressions and considers the movements of CDS Industrial Sector Indices depending on common risk factors such as equity risk, risk appetite, term spread and TED spread. We use CDS Industrial indexes and the market risk factor to identify the impact of market liquidity risk and market credit risk in the different US Industries and give evidence of the heterogeneity of this relation. We show that all the sectors are largely exposed to the non investment grade bond spread indicating that credit risk is largely a common factor rather than a sector specific factor. With a lower impact, we also find that market risk and interest rate risk are also common factors, as well as liquidity risk. These results indicate that diversification among sectors might collapse when credit, equity and liquidity events hit the market. The information extracted from CDS market could thus provide relevant information for sector allocation strategies.