What is Funds Transfer Pricing in the ALM process?
A) A maturity analysis of a bank's interest-bearing assets and interest-bearing liabilities.
B) A method used to measure how much each source of funding is contributing to overall profitability.
C) A calculation of the spread between the duration of the interest-bearing assets and the interestbearing liabilities.
D) The evaluation and management of the gap between a bank's volume of loans and deposits.

Question

Quizplus · Accepted Answer

Funds Transfer Pricing (FTP) is a method used to measure how much each source of funding is contributing to overall profitability in the ALM process. It is used to allocate the cost of funds to the different business units within the bank and to assign a value to deposits and other funding sources. FTP takes into account the costs and risks associated with different sources of funding, as well as the profitability of the assets they support. A maturity analysis (A), duration analysis (C), and evaluation of loan and deposit volumes (D) are all important elements of the ALM process, but they are not specifically related to FTP.

What Is Funds Transfer Pricing in the ALM Process