What are the two types of pricing environments for sales to external parties?
What is a transfer price? Why is determining a fair transfer price important to division managers?
1. What are the two types of pricing environments for sales to external parties?
I have used different words in various search engines and found very few hits using the words "pricing environments." Is there another word that is used instead of environment?
a. One site referred to the internal and external pricing environment in a SWOT analysis - and the micro and macro environments. However, this is speaking more about marketing then pricing environment (http://www.marketingteacher.com/Lessons/lesson_marketing_environment.htm).
b. Exposure and economic environment - In another article on Hedging, it refers specifically to two pricing environments: exposure and economic environment in answer to the following question:
"Third, what are the various hedging instruments available to the corporate Treasurer and how do they behave in different pricing environments?
When is it best to use which instrument is the question the corporate Treasurer must answer. The difference between a mediocre corporate Treasury and an excellent one is their ability to operate within the context of their shareholder-delineated limits and choose the optimal hedging structure for a particular exposure and economic environment. Not every structure will work well in every environment. The corporate Treasury should be able to tailor the exposure using derivatives so that it fits the preferences and the view of the senior management and the board of directors. ...
This solution identifies and explains the two types of pricing environments for sales to external parties. It then defines transfer price and explains the reason why determining a fair transfer price is important to division managers. This solution is 850 words.