Which maturity?

An additional issue concerns the appropriate maturity of the transfer price. As we observe several interbank rates, the one month to maturity rate, the two months to maturity rate, etc., we need to select a specific rate. A very simple rule is applied: the matching maturity rule.

As an example, we will use a one-year interbank rate to remunerate a one-year deposit and we shall use a two years to maturity interbank rate as the cost of funding a two years to maturity loan. Not only does this principle seem intuitive, it will also protect the branch manager against interest rate fluctuation.[2]

[2] See what would happen if maturity-matching was not used. If a one year to maturity fixed rate deposit were collected, and a one-month ...

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