11.4 Define Adjustment Rules

Adjustment Rules allow users to define Transfer Pricing Add-on rates that are assigned incrementally to the base FTP rate to account for a variety of miscellaneous risks such as Liquidity risk or Basis risk or to supplement strategic decision-making with Pricing Incentives, Breakage Charges, or other types of rate adjustments.

Within both the Standard and Stochastic Transfer Pricing Processes, users can select an appropriate Adjustment rule to calculate add-on rates or breakage charges.

Add-on rates can be a fixed rate, a fixed amount, or a formula based rate. Breakage Charges can be a fixed percentage, a fixed amount or can be calculated on an Economic Loss basis. The adjustments are calculated and output separately from the base funds transfer pricing rate, so they can be easily identified and reported. Additionally, adjustments allow you to apply event-based logic through the use of conditional assumptions that are applied or varied only if a specific condition is satisfied.

• Adjustment Methods and Rules
  You can use any of the following methods in an Adjustment Rule when the selected Adjustment Type is Liquidity Premium, Basis Risk Cost, Pricing Incentive, or Other Adjustment:
• Breakage Charges
  A Breakage Charge represents the cost of breaking a contractual obligation. In Bank Finance this means the early prepayment of a loan by a customer or the early withdrawal of deposit funds by a customer. “Early” in this sense means before the contractual maturity date.