Transfer Risk

In: Historical Events

Submitted By TiarraPayne
Words 296
Pages 2
Transfer Risk

Probability of loss due to currency conversion (exchange) restrictions imposed by a foreign government that make it impossible to move money out of the county. It is a type of political risk.

Transfer risks is a large factor in international business and currency trading alike. Transfer risk may be associated with changes in currency value, currency exchange restrictions, the value of a given set of goods, and more. Many businesses keep a reserve of cash, often referred to as a transfer risk reserve, to deal with these issues. Transfer risk can affect the value of funds, made in another country, upon conversion. Transfer risk can also effect other parts of the deal. Transfer risk can be cause by surprising restrictions on the amount of money pulled out of a country, the value of the goods which a company imports or exports money and more.

Transfer risk also explained as the risk of transferring money across the borders, has many implications. For currency traders, transfer risk mainly effects the value of a trade they have or were going to make. This could cause the trader to loose percentage of any unit. For companies doing commerce across boarder transfer risk is more comprehensive. When a company does business internationally it is subject to the regulations of that government. So the company can quickly experience changes in banking regulations, commerce regulations, port laws and much more than that. In this way, transfer rick can become a substantial variable which could lead to failure of the business as a whole.

Wilkinson, J. (2013, July 24). Transfer Risk. Retrieved July 15, 2015.

Gray, A. (2013, December 9). Risk-Transfers. Retrieved July 15, 2015.

Gray, A. (2013, December 9). Risk-Transfers. Retrieved July 15,…...

Similar Documents

Transfer Price

...Introduction Transfer pricing has long been an important cost management topic for transactions among domestic subsidiaries. The concern is to promote actions and behaviors that seek to maximize the corporate performance and profitability rather than the subsidiary performance. Unlike transfer pricing between two divisions of the same company, this transactions between subsidiaries cross international boundaries, involve tax issues concerning the determination, analysis and adjustment of prices between this related entities. I. Transfer price 1. Transfer price definition The transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associate enterprises. They are the prices charged for any transaction between affiliates entities. This transfer may be commercial, financial or technical. According to the OECD, two companies are associated if one of the enterprises participates directly or indirectly in the governance, management, control or the capital of the other or if the same persons participate directly or indirectly to the management, control or the capital of both enterprises. They can be defined simply as transactions prices between companies of the same group and resident in different states. This type of transactions involves intra-group transactions crossing borders. Example: Within a MNE group, a subsidiary A established in France sells computers to another subsidiary B......

Words: 2245 - Pages: 9

Transfer Pricing

...Investment centers, and highlighting examples relevant to each. • Financial Decision Measures Financial Decisions Financial Decisions are decisions that involve: (1) Determining the proper amount of funds to employ in a firm (2) Selecting projects and capital expenditure analysis (3) Sourcing funds on the most favorable terms possible (4) Managing working capital such as inventory and accounts receivable. Financial Decision Measures There are three fundamental concepts that underlie the process of making many financial decisions.  They are also the three fundamental concepts that determine the economic value of any project, investment, or business organization.  The three concepts are; a) Time Value of Money b) Risk-Return Relationship c) Cash Flows • Responsibility accounting This is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts. The objective is to assist in the planning and control of a company’s responsibility centers—such as decentralized departments and divisions. These parts, or segments are referred to as responsibility centers that include: a) Revenue centers b) Cost centers c) Profit centers d) Investment centers This approach allows responsibility to be assigned to the segment......

Words: 1522 - Pages: 7

With Regards to Risk-Response Planning, There Are Four Responses to Negative Risks That an Organization May Pursue: Avoid, Transfer, Mitigate, and Accept. Contrast Each of These Responses and Develop a Unique Scenario Supporting Each.

...When you’re planning your project, risks are still uncertain: they haven’t happened yet. But eventually, some of the risks that you plan for do happen. And that’s when you have to deal with them. There are four basic ways to handle a risk: Avoid The best thing that you can do with a risk is avoid it if you can prevent it from happening, it definitely won’t hurt your project. For example, your company has found a new building for a great price but it is in a high crime area, in this case it would be best to avoid the purchase. Mitigate If you can’t avoid the risk, you can mitigate it. This means taking some sort of action that will cause it to do as little Damage to your project as possible. Unfortunately you have to venture out in the rain which may cause you to sleep and fall. How you can mitigate having an accident would be to wear slip resistant shoes and carry an umbrella. Transfer One effective way to deal with a risk is to pay someone else to accept it for you. The most common way to do this is to buy insurance. Nobody can predict when a car accident will happen, that is why you purchase car insurance like All State or Geico. Accept When you can’t avoid, mitigate, or transfer a risk, then you have to accept it. But even when you accept risk, at least you’ve looked at the alternatives and you know what will happen if it occurs. We all know that in the event of a hurricane, in most cases there is very little you can do to mitigate the damage, so you......

Words: 291 - Pages: 2

Transfer Pricing

... * An MNE using the CUP method to determine its transfer price must first identify all the differences between its product and that of the independent manufacturer. The MNE must then determine whether these differences have a material effect on the price, and adjust the price of products sold by the independent manufacturer to reflect these differences, to arrive at an arm’s length price. A comparability analysis under the CUP method should consider amongst others the following: * Product characteristics such as physical features and quality. * If the product is in the form of services, the nature and extent of such services provided. * Whether the goods sold are compared at the same points in the production chain. * Product differentiation in the form of patented features such as trademarks, design, etc. * Volume of sales if it has an effect on price. * Timing of sale if it is affected by seasonal fluctuations or other changes in market conditions. * Whether costs of transport, packaging, marketing, advertising, and warranty are included in the deal. * Whether the products are sold in places where theeconomic conditions are the same. Example 1 Taxpayer A, an MNE sells 70% of its product to an overseas associated company B, at a price of RM100 per unit. At the same time, the remaining 30% of that product is sold to a local independent enterprise C at RM150 per unit. B Transfer price 100 A C Arm’s length price ...

Words: 1266 - Pages: 6

Transfer Prices

...TRANSFER PRICING Overview The essential feature of decentralization in large firms is the creation of responsibility centers (e.g. cost, profit, or investment centers). The performance of these responsibility centers is evaluated on the basis of various accounting numbers, such as standard and actual cost, divisional profit or return on investment. A central role of the management accounting system therefore is to evaluate (i.e. attach a dollar figure to) the transactions between the different responsibility centers. Under the subject cost allocation we studied alternative methods to charge user departments for the services rendered by service departments (frequently cost centers). Transfer prices are used to evaluate the goods and services exchanged between profit centers (divisions) of a decentralized firm. Hence, the transfer price is the price that one division of a company charges another division of the same company for a product transferred between the two divisions. 1. There are no cash flows between the divisions. The transfer price is used only for accounting purposes. 2. The transfer price becomes an expense for the receiving manager and a revenue for the supplying manager. 3. If intra-company transfers are accounted for at prices in excess of cost, appropriate elimination entries have to be made for external reporting purposes. Examples of items to be eliminated for consolidated financial statements include: 4.......

Words: 1287 - Pages: 6

Fiscal Transfers

...A CASE STUDY OF SIERRA LEONE        INTRODUCTION TYPES OF TRANSFERS BASIS OF DISTRIBUTION PREDIACTABILITY AND IMPLICATIONS MONITORING AND EVALUATION CHALLENGES THE WAY FORWARD • • • The 19 Local Councils in Sierra Leone were set up on the basis of the Local Government Act 2004. The Councils for their existence largely depend on transfers from the Central Government. The Local Government Act 2004 in S.47 states that : ‘Until and including the Financial Year ending 2008, Parliament shall appropriate to Local Councils as a tied grant for each devolved service, at least that amount necessary to continue the operation and maintenance of that service at the standard to which it was provided in the year prior to its devolution’   Population = 4.9 Million (2004 Census) Area=71,740 sq km (27,925 sq miles)  Devolved functions include: ◦ ◦ ◦ ◦ ◦ ◦ ◦ Health and Sanitation Education Agriculture, Forestry & Food Security Internal Affairs Social Welfare, Gender & Children’s Affairs Fisheries and Marine Resources Youths and Sports Grants tied to Devolved functions ◦ Recurrent and Development  share of revenues from sources such as the mining sector  Grants to the Local Governments are on the basis of a grants distribution formula. ◦ The formula considers      Population size Composition of population Size of farming population Revenue base amongst others In addition to these factors, allocations are set aside for some......

Words: 391 - Pages: 2

Transfer Price

...Question 5 – Transfer Price Division A, which is part of the ACF Group, manufactures only one type of product, a Bit, which it sells to external customers and also to division C, another member of the group. ACF Group's policy is that divisions have the freedom to set transfer prices and choose their suppliers. The ACF Group uses residual income (RI) to assess divisional performance and each year it sets each division a target RI. The group's cost of capital is 12% a year. Division A Budgeted information for the coming year is as follows. Maximum capacity | 150,000 Bits | External sales | 110,000 Bits | External selling price | $35 per Bit | Variable cost | $22 per Bit | Fixed costs | $1,080,000 | Capital employed | $3,200,000 | Target residual income | $180,000 | Division C Division C has found two other companies willing to supply Bits. X could supply at $28 per Bit, but only for annual orders in excess of 50,000 Bits. Z could supply at $33 per Bit for any quantity ordered. Required: (a) Division C provisionally requests a quotation for 60,000 Bits from division A for the coming year. (i) Calculate the transfer price per Bit that division A should quote in order to meet its annual profit target of $564,000. (5 marks) (ii) Calculate the two prices division A would have to quote to division C, if it became group policy to quote transfer prices based on opportunity costs. (4 marks) (b) Evaluate and......

Words: 828 - Pages: 4

Transfer Pricing

...Transfer Pricing Kim: “I ... don’t understand why it would make sense to pay $450/ton for pulp [to buy internally from Northwestern’s U.S. pulp mills] when I can get it for $330/ton from Chile.” Ewing: “I understand your motivation for wanting to source the pulp from Chile, but it is important [to buy inside] for the corporation to act as an integrated team.” Barrett and Slape (2000: 597) Executive summary The quote above is an excerpt from a phone conversation between Bill Ewing, the Vice President of Northwestern Paper Company 1, and Arthur Kim, the Director of Northwestern’s South Korean subsidiary. This conversation rises questions on the advantages and disadvantages of utilizing internal transfer prices. Such as: given that some subsidiaries are located in lower tax jurisdictions, would it not be logical to set lower internal transfer prices to those subsidiaries? Would it not be logical to allow the Korean subsidiary to purchase from outside suppliers given that internal transfer prices are much higher than market prices in Chile? Allowing subsidiaries to outsource externally would lead to the bankruptcy of the US subsidiaries, which would not have enough demand for their products? What are the advantages and disadvantages of a reward system based on the allocation of internal consumption? Is the allocation process “fair” to each subsidiary? Is it “fair” to the company as a whole? Questions and doubts on transfer pricing probably haunt not only Mr. Ewing and the......

Words: 919 - Pages: 4

Transfer Pricing

...TRANSFER PRICING Pengertian : A transfer price is what one segment of company charges another segment of the same company for the transfer of good or service. The segment may be subsidiaries, departments, branches, or any other part of the overall multinational organization. Secara umum transfer pricing merupakan jumlah harga atas penyerahan barang atau imbalan atas penyerahan jasa yang telah disepakati oleh kedua belah pihak dalam transakasi bisnis financial maupun transaksi lainnya. Dalam suatu grup perusahaan, transfer pricing (sering disebut dengan istilah intercompany pricing, intercorporate pricing, interdivisional pricing atau internal pricing) Secara komersial terdapat beberapa dasar penentuan harga transfer yaitu : a. Cost basis b. Market basis c. Negosiasi d. Arbitrasi e. Ganda Harga transfer yang mendasarkan pada biaya bisa berupa : • Actual variable cost • Actual fixed cost • Standard variable cost • Standard full cost • Average cost • Full cost plus mark up Sehubungan dengan harga transfer, terdapat beberapa ketentuan dalam UU PPh yang mengatur tentang perlakuan harga (pasal 10 (1), pasal 6 (1) dan pasal 18). Implikasi Pajak Transfer pricing dapat melibatkan baik transaksi domestic maupun global. Dari aspek pajak penghasilan, transfer pricing domestic tidak membawa implikasi yang signifikan karena potensi penghasilan kena pajaknya (walau digeser dari satu ke lain badan) masih berada......

Words: 1590 - Pages: 7

Transfer Pricing

...3 Effects of Exchange Rates On International Transfer Pricing Decisions Canri Chan (E-mail:, Monterey Institute of International Studies Steven P. Landry (E-mail:, Monterey Institute of International Studies Terrance Jalbert (E-mail:, University of Hawaii at Hilo Abstract Events leading to the passing of the Sarbanes-Oxley Act have led to increased concern with and scrutiny of potential management manipulation of financial statements. From an agency theory perspective, managers have incentives to manipulate organizational methods and choices in order to produce financial statements that those managers believe will maximize their incentive compensation. Transfer pricing represents one possible choice that managers can manipulate. This paper investigates whether exchange rates affect transfer pricing particularly as it relates to maximizing overall corporate profitability. The effects of taxes and government regulations have been explored in considerable depth in the transfer pricing literature. However, while transfer prices should also be affected by exchange rates in predictable ways, this variable has received comparably little attention in the literature. Inclusion of exchange rates in an analysis of transfer pricing and corporate profitability presents an opportunity to add to the literature. We conducted an experiment to examine how managers set transfer prices. We found that, while individuals were......

Words: 7869 - Pages: 32

Transfer Pricing

...expanding and add greater stability to earnings through diversification. Complex organizational structures help achieve business objectives such as increased profitability and reduced risks. Also, these complex structures allow the company to reduce its overall tax burden. One such strategy is discussed in this paper. Transfer pricing allows the company to price the inter-company transactions. Transfer pricing simplifies the accounting of transactions that take place between affiliated or related entities. Companies have freedom in valuing inter-company transactions. But, if strategically implemented, this strategy allows the company to save taxes and retain large amount of profits. Keywords: Transfer mispricing, tax-havens, Double Irish Dutch Arrangement Transfer Pricing Transfer pricing is the methodology used to set the prices for goods sold or services provided between related entities within an enterprise. Related entities are those which are under control of a single corporation and include branches and companies that are wholly or majority owned ultimately by the parent company. Generally, such a transfer price should be equal to the price which the entity would charge to an independent customer, an arm’s length customer. Such a price is termed as an “arm’s length price” (Transfer Pricing, Wikipedia, 2015). Financial accounting does not differentiate between affiliates and treats the corporate group as a single entity. But the federal income tax law treats......

Words: 3264 - Pages: 14

Transfer Pricing

...SOAL LATIHAN TRANSFER PRICING SOAL 1: PT PARAHYANGAN INDUSTRYmemilikibeberapadivisiusahanyadansalahsatunyaadalahdivisiA yang khususmemproduksiproduk spare part denganmerk ‘PLAZO’ yang selamainidijualkepasareksternal. Padaawaltahun 2008, PT PARAHYANGAN INDUSTRY membentuk 1 divisibarulagiyaitudivisi F untukmemproduksiproduk ‘METAZO’, danuntukmenghasilkanproduk METAZO inijugadiperlukan spare part seperti yang dihasilkanolehdivisi A. Divisi F jugamendapatkanpenawarandaripihakluaruntukmembeliproduk spare part tsb yang samaseperti yang dihasilkanolehdivisi A. Di bawahinibeberapa data produksidan data lainnyadaridivisiA, sbb: * Kapasitasproduksi normal setahununtukproduk PLAZO adalah 250.000 unit, dansampaisaatinidivisi A barudapatmenggunakankapasitasproduksinyasebesar 75% darikapasitas yang ada, danseluruhproduk yang diproduksidapatterjualkepasareksternaldenganharga per unit Rp. 31.000. * Biayaproduksiuntukmembuat spare part PLAZO adalahsbb: * BahanlangsungRp. 1.350.000.000. * UpahlangsungRp. 768.750.000.000. * Variable conversion cost Rp.1.425.000.000. * Manufacturing Overhead cost Rp. 1.856.250.000. * Biaya Variable SGA per unit Rp. 3.200, dari jumlah mana sebanyak 30% dapat dihindarkan apabila terjadi internal sales antar divisi. * Biaya Fixed SGA per tahun sebesar Rp. 824.031.250, dimana 35% merupakan sunk cost. Divisi F bisa membeliprodukspare part tsb dari supplier luardenganhargaRp. 28.500/unit. Pertanyaan : a) Hitunglah di antara......

Words: 2110 - Pages: 9

Venue Transfer

...Johnny Patterson Venue Management Learning Transfer Venue Management Key Principles 4 Points of Cultural Intelligence * Motivational * Drive. Your level of interest, drive, and energy to adapt cross-culturally. * Cognitive * Knowledge. The knowledge dimension of CQ - your understanding about cultures and culture's role in shaping the way you think and behave and how it affects business. * Metacognitive * Strategy. Your ability to strategize when crossing cultures. The ability to think about your own thought process and draw on your cultural knowledge to understand a different cultural context and solve problems in that situation. * Behavioral * Action. The action dimension of CQ is your ability to act appropriately in a range of cross-cultural situations. Knowing when and when not to adapt 7 Characteristics of Culture * Culture = Behavior
 * Learned through rewards or consequences and interactions with other employees
 * Subcultures form through rewards; not necessarily from management
 * People shape culture
 * Culture is negotiated
 * It is difficult to change
 * Culture can be strong or weak Mission/Values/Goals Mission Statement * Addresses who customers are, services provided, how services provided. * Who you are right now. Values * Underline agency's reason for existing; principles, qualities and beliefs. * Formed by merging member, leader and......

Words: 319 - Pages: 2


...consideration: | University minimum required cumulative average for consideration: | Notes: Transfer credits upto 1 year | | | | | Bachelor of Commerce | 75% | 70% | In addition, applicants must present 4U English and Advanced Functions for all majors, plus one additional 4U math (or equivalent) when applying to Accounting, Food and Agricultural Business, Human Resources Management, Management Economics and Finance, Marketing Management and Real Estate and Housing majors. | TRANSFER CREDITS University of Guelph- BCom Brock University- BAcc,BBA Entry Credential | Minimum Admission Average * | Transfer credits awarded ** | Notes | 2-year diploma | B- | 3.0-5.0 Credits | Honours degrees are comprised of 20.0 credits, three-year pass degrees are 15.0 credits | University of Waterloo- Bachelors in accounting and Finance Management If you’re applying from college, you can receive transfer credit for up to 50% of the courses needed for your Waterloo degree. To earn a Waterloo degree, you’ll need to complete at least 50% of your Waterloo degree requirements while registered in your new academic program. You must meet all requirements of your Waterloo academic plan in order to graduate, regardless of the number of transfer credits that you receive. * If you are admitted into an honours or 4-year general program, you can receive up to 10 units of transfer credit (the equivalent of 2 years of study). Accounting and Financial......

Words: 303 - Pages: 2

Transfer Pricing

...Accounting 1 Session 1, 2011 Tutorial Week 8 - Transfer pricing Tutorial Questions Overall Theme In previous weeks we have focused our attention on the use of management accounting information for costing purposes (e.g. ABC), processes improvement (e.g. ABM, process analysis), and for budget control (standard cost analysis). This week we switch our attention to another aspect of management accounting by exploring the concept of responsibility accounting. We look at how management accounting system can be designed to encourage desirable (goal-congruent) managerial behaviour and to reflect the autonomous nature of contemporary, de-centralised organisations. In particular, we examine two control mechanisms used in conjunction with the responsibility accounting system, namely, transfer pricing. We will consider how managers determine transfer prices, rationales behind these systems, their benefits and limitations. Along the way we will also consider the impact of interdependencies and why variability can play havoc on management accounting systems. Desired Learning Outcomes and Essential Reading Mowen et. al. (2010): • Chapter 10: p368-374 • Chapter 13: p508-513; p523-535. TOPIC 6 TRANSFER PRICING After completing this topic, you should be able to: • • • • Explain the benefits and costs of decentralisation Explain the benefits of transfer pricing systems Understand the differences between the types of responsibility accounting systems Determine transfer prices using various......

Words: 1244 - Pages: 5