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The Fund Transfer Pricing (FTP) measures the contribution by each source of funding to the overall profitability in a financial institution. [1] Funds that go toward lending products are charged to asset-generating businesses whereas funds generated by deposit and other funding products are credited to liability-generating businesses.
The discussion in this section explains an economic theory behind optimal transfer pricing with optimal defined as transfer pricing that maximizes overall firm profits in a non-realistic world with no taxes, no capital risk, no development risk, no externalities or any other frictions which exist in the real world.
The transactional net margin method (TNMM) in transfer pricing compares the net profit margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by arm's length parties from similar transactions; and examines the net profit margin relative to an appropriate base such as costs, sales or assets.
An advance pricing agreement (APA) is an ahead-of-time agreement between a taxpayer and a tax authority on an appropriate transfer pricing methodology (TPM) for a set of transactions at issue over a fixed period of time [1] (called "Covered Transactions").
Roll's critique is a famous analysis of the validity of empirical tests of the capital asset pricing model (CAPM) by Richard Roll.It concerns methods to formally test the statement of the CAPM, the equation
Whereas appropriate transfer pricing of tangible goods can be established by comparison with prices charged for similar goods to unrelated parties, transfer pricing of intangible goods, products of intellectual efforts, rarely has comparable equivalents. Transfer prices then have to be established based on expectations of future income. [16]
On April 20, 2020, oil futures reached negative values for the first time in history, [2] where Bachelier model took an important role in option pricing and risk management. The European analytic formula for this model based on a risk neutral argument is derived in Analytic Formula for the European Normal Black Scholes Formula ( Kazuhiro ...
The EU Joint Transfer Pricing Forum (JTPF) was an informal body set up to assist and advise the European Commission on transfer pricing tax matters. It has since been discontinued. [ 1 ] The JTPF was set up in 2002 from an EU communication . [ 2 ]