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Explanation:
The primary advantage of the pooled average costs approach to Liquidity Transfer Pricing (LTP) is its simplicity. It is an easy and straightforward method that simplifies the LTP process, making it easier for banking personnel to understand, implement, and comply with. However, option C contains contradictory logic (vulnerability to transitional changes is a disadvantage, not a reason to choose it), effectively ruling out option D. Therefore, option B provides the most accurate and complete rationale.
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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