Defining Transfer Pricing Methodologies Using Node Level Assumptions

31.12 Defining Transfer Pricing Methodologies Using Node Level Assumptions

In Oracle Funds Transfer Pricing Cloud Service, your product portfolio is represented using the Product Dimension specified in your FTP Application Preferences. Node Level Assumptions allow you to define Transfer Pricing, Prepayment, and Adjustment Assumptions at any level of the Product Dimension Hierarchy. The Product Dimension supports a Hierarchical Representation of your Chart Of Accounts, therefore, you can take advantage of the Parent-Child relationships defined for the various nodes of your Product Hierarchies while defining Transfer Pricing, Prepayment, and Adjustment Assumptions. Child nodes for which no assumptions are specified automatically inherit the methodology of their closest Parent node. Conversely, explicit definitions made at a Child level will take precedence over any higher-level Parent node assumption.

Node level Assumptions simplify the process of applying rules in the user interface and significantly reduce the effort required to maintain Business Rules over time as new products are added to the product mix. It is also not required for all rules to assign assumptions to the same nodes. Users may assign assumptions at different levels throughout the Hierarchy.

Note:

While creating a new rule, if you perform any activities (such as Conditional Assumption Creation, Defining Products, Search, Copy Across, and so on) in the Assumption window and click the Cancel button, the Rule will be saved with basic Rule definition and displayed in Rule Summary Page.

The Behavior of Node Level Assumptions: The following graphic displays a Sample Product Hierarchy:

Figure 31-16 Sample Product Hierarchy

The Illustration displays a sample product hierarchy.

For example, if you want to transfer price this Product Hierarchy using the Spread from Interest Rate Code Transfer Pricing Method except for the following products:

Mortgages: You want to transfer price these using the Zero Discount Factors Cash Flow based method.
Credit Cards: You want to transfer price all but secured credit cards using the Spread from Note Rate Method.

To transfer price in this manner, you need to attach Transfer-Pricing Methods to the nodes of the Product Hierarchy as follows:

Hierarchy Root Node: Spread from Interest Rate Code
Mortgages: Zero Discount Factors Cash Flow
Credit Cards: Spread from Note Rate
Secured Credit Cards: Spread from Interest Rate Code

Figure 31-17 Assumption Browser

This illustration depicts the Assumption Browser.

The Transfer Pricing Method for a particular product is determined by searching up the nodes in the hierarchy. Consider the Secured Credit Cards in the previous example. Since the Spread from IRC is specified at the leaf level, the system does not need to search any further to calculate the transfer rates for the Secured Credit Cards. However, for a Premium Credit Card, the system searches up the Hierarchical Nodes for the first node that specifies a method. The first node that specifies a method for the Premium Credit Card is the Credit Card node and it is associated with the Spread from Note Rate method.

Note:

Not specifying assumptions for a node is not the same as selecting the "Do Not Calculate" method. Child nodes for which no assumptions are specified automatically inherit the methodology of their closest parent node. Therefore, if neither a child node nor its immediate parent has a method assigned, then the Oracle Funds Transfer Pricing Cloud Service searches up the nodes in the hierarchy until it finds a parent node with a method assigned, and uses that method for the child node. If there are no parent nodes with a method assigned then the application triggers a processing error stating that no assumptions are assigned for the particular product/currency combination. However, if the parent node has the "Do Not Calculate" method assigned to it then the child node inherits "Do Not Calculate", preventing the need for calculation and a processing error.

All parameters that are attached to a particular methodology (such as Interest Rate Code) are specified at the same level as the method. If multiple Interest Rate Codes are to be used, depending on the type of the product, the method would need to be specified at a lower level. For instance, if you want to use IRC 211178 for Consumer Products and IRC 3114 for Commercial Products, then the Transfer Pricing Methodologies for these two products need to be specified at the Commercial Products and Consumer Products nodes.

You need not specify Prepayment Assumptions at the same nodes as Transfer Pricing Methods. For example, each Mortgage category can have a different prepayment method while the entire Mortgage node uses the Zero Discount Factors Cash Flow Method for transfer pricing.