The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
For original practice, change an internal funding charge while holding all external flows fixed. Ask which segment contributions change and whether total bank profit changes. In paper review, separate allocation questions from funding-cost questions, and check whether a case changes only the internal method or also changes actual customer pricing and funding decisions.
02 / UNDERSTANDING
The concept in context
A useful framework reflects the characteristics of the transaction, including repricing, tenor and liquidity demands, while maintaining a clear methodology. An inappropriate common rate can reward mismatches or make a branch appear successful for risks managed elsewhere. Behavioural assumptions and exceptional pricing therefore need transparent governance and review.
03 / UNDERSTANDING
A worked learning case
A fictional deposit branch gathers stable funding, while another branch originates long-tenor loans. Their managers initially compare only customer interest rates. Treasury introduces internal credits and charges aligned with transaction characteristics. The revised report distinguishes deposit gathering, customer lending margin and centrally managed mismatch, allowing the managers to discuss performance without claiming the internal entries increased total bank profit.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
Does changing an internal transfer price automatically increase consolidated bank profit?
Show the answer and reasoning
No; it changes internal allocation unless external behaviour also changes.
The internal credit received by one part of the bank is matched by an internal charge elsewhere. It can improve incentives and reveal economic costs, but it does not independently bring in external revenue. Consolidated results change only through resulting business decisions or other genuine income, expense and risk effects.
Two traps to watch for.
- Using one internal rate without considering transaction characteristics.
- Confusing a branch's allocated contribution with new external profit.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Map the internal credit and matching internal charge.
Compare maturity and repricing assumptions for two products.
Identify the behaviour that the transfer-pricing rule rewards.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- iibf.org.in https://iibf.org.in/caiib-certified-associate-IIBF
- iibf.org.in https://iibf.org.in/documents/RulesSyllabus/2026/FlagshipCourses/60%20-%20CAIIB_24.07.25_Change_Final%20Website_23.02.2026.PDF
- www.rbi.org.in https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7680
For CAIIB preparation, check the current official notice before relying on changing dates, rules or examination requirements.
