Explanation:
The pooled average costs approach to Liquidity Transfer Pricing (LTP) is widely utilized primarily due to its simplicity. Because it calculates an average cost of funds, it makes the FTP/LTP framework easier for management and different business units to understand, implement, and comply with, even though it generally fails to reflect the true marginal cost of funding.
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Q.54 Which of the given options is the most accurate reason why banks choose to use pooled average costs approach to LTP?
A
It is a more straightforward method
B
It is simple, thus makes it easier for banks to understand and comply with the LTP process.
C
The average cost of funds approach is vulnerable to transitional changes in banks’ real market cost of funding, therefore, minimizing net interest income deviation across all businesses.
D
All of the above
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