Future value and Notional pool: Difference between pages

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(FV).  
''Cash and liquidity management''.


If we invest money today (and roll up all the expected income) the future value receivable is the expected total value of our investment at its maturity.
A notional cash pool is a structure involving several related bank accounts whose balances have been aggregated for the purposes of optimising interest paid or received.


If we ''borrow'' money today (and roll up all the interest payable) the future value payable is the total principal and interest repayable to the lender at the final maturity of the borrowing.
In other words a bank looks only at the total balance of the accounts in the notional pool when calculating interest, but there is no physical movement of funds.




For example if $100m is held today, and the rate of return on capital (r) is 10% per year, the Future value is:
<span style="color:#4B0082">'''''Bank models evolving'''''</span>


FV = $100m x 1.1<sup>1</sup> = $110m
:"The world of cash management and payments is evolving in response to changes in bank business models as a result of regulation (ie the move away from notional pools)."


:''Michelle Price, associate policy and technical director, Association of Corporate Treasurers, The Treasurer, August 2018, p24.''


And more generally:


FV = Present value x Compounding Factor (CF)
== See also ==
* [[Aggregation]]
* [[Cash pool]]
* [[Concentration account]]
* [[Consolidation]]
* [[Legal implications of cash pooling structures]]
* [[Notional pooling]]
* [[Regulation]]




Where:
===Treasurer articles===
[http://www.treasurers.org/node/9923 The pros of pooling, ''Sarah Boyce'']


CF = (1+r)<sup>n</sup>
[http://www.treasurers.org/node/8824 Take the plunge, ''Brendan McGraw'']


r = return on capital or cost of capital per period; and
[[Category:Cash_management]]
 
n = number of periods
 
 
== See also ==
* [[Compounding factor]]
* [[Present value]]
* [[Terminal value]]
* [[Time value of money]]

Latest revision as of 14:36, 8 August 2018

Cash and liquidity management.

A notional cash pool is a structure involving several related bank accounts whose balances have been aggregated for the purposes of optimising interest paid or received.

In other words a bank looks only at the total balance of the accounts in the notional pool when calculating interest, but there is no physical movement of funds.


Bank models evolving

"The world of cash management and payments is evolving in response to changes in bank business models as a result of regulation (ie the move away from notional pools)."
Michelle Price, associate policy and technical director, Association of Corporate Treasurers, The Treasurer, August 2018, p24.


See also


Treasurer articles

The pros of pooling, Sarah Boyce

Take the plunge, Brendan McGraw

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