8.2.14.2 Model Usages

Average Balance is typically used in Funds Transfer Pricing for calculating instrument level charge/credit amounts by customers who run their FTP Process monthly, because it gives the best approximation of the balance over the entire month and will result in a funds charge/credit amount that closely matches the interest income or expense for the account.

Note:

The most accurate way to compute funds charges/credits is to run the calculation daily using end of day balances and accrue the charges/credits over the entire month.This approach will exactly match with the interest accruals.Use of Average balance as described above is the next best option.

In Funds Transfer Pricing, when using Average Balance, along with a monthly accrual, the charge/credit calculation is as follows:

AVG_BOOK_BALx TRANSFER_RATE/100 x Monthly Accrual Factor (e.g. ACT/ACT)