Break even point and Credit Conversion Factor: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
m (Add headers.)
 
imported>Doug Williamson
(Create the page. Sources: linked pages.)
 
Line 1: Line 1:
(BEP).  
''Bank supervision - capital adequacy''.


(CCF).


1. ''Cost and management accounting.''
The CCF converts an off balance sheet exposure to its credit exposure (Risk Weighted Assets) equivalent.  


In cost and management accounting, the break even point is the number of units of production at which total contribution is equal to fixed cost.
Off balance sheet exposures - like a guarantee - have a probability of becoming a credit exposure and shifting onto the balance sheet, for example if the guarantee is called.  


In other words this is the level of production at which a producer will neither earn a profit nor incur a loss.


The CCF is an estimate of this probability.


2. ''Market pricing.''
By multiplying the CCF with the value of the guarantee or other off balance sheet exposure, you get the expected value of the credit exposure.


Break even point also refers to the market price at which a strategy results in neither a profit nor a loss.


 
==See also==
3. ''Strategy choice.''
*[[Capital adequacy]]
 
*[[Guarantee]]
Break even point can also mean any point - for example an out-turn market price - at which two alternative strategies give the same result.
*[[Off balance sheet risk]]
 
*[[Risk Weighted Assets]]
It is therefore the point of ''indifference'' between two choices or strategies. For example two trading strategies each resulting in the same expected profit.
 
So when the break even point is crossed, the optimum decision or choice will change.
 
 
Also written ''breakeven'' point.
 
 
== See also ==
* [[Break-even]]
* [[Contribution]]
* [[Fixed cost]]
* [[Margin of safety]]
* [[Out-turn]]
* [[Sensitivity analysis]]
 
[[Category:Accounting,_tax_and_regulation]]

Revision as of 21:32, 12 November 2016

Bank supervision - capital adequacy.

(CCF).

The CCF converts an off balance sheet exposure to its credit exposure (Risk Weighted Assets) equivalent.

Off balance sheet exposures - like a guarantee - have a probability of becoming a credit exposure and shifting onto the balance sheet, for example if the guarantee is called.


The CCF is an estimate of this probability.

By multiplying the CCF with the value of the guarantee or other off balance sheet exposure, you get the expected value of the credit exposure.


See also

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Break_even_point&oldid=12445’