ACCA Strategic Professional · Advanced Financial Management · The role of the treasury function in multinationals
A multinational group's treasury centre introduces multilateral netting for intra-group trade settlements between its subsidiaries in several countries. Which of the following is the primary benefit of this arrangement?
The main benefit of multilateral netting is that it reduces the number and value of cross-border payments between group companies. Each subsidiary pays or receives one net amount, so bank charges and foreign exchange spreads fall. It does not remove exposure on third-party transactions or fix rates.
- AIt removes all transaction exposure on third-party sales
- BIt reduces the number and value of cross-border payments, lowering transaction costs and foreign exchange conversion spreadsCorrect
- CIt converts translation exposure into economic exposure
- DIt guarantees a fixed exchange rate for all future intra-group trade
Explanation
Multilateral netting offsets amounts owed between group companies so that each subsidiary makes or receives only a single net payment. This cuts the number and size of cross-border transfers, saving bank charges and currency conversion spreads. It does not affect exposures on third-party sales, nor does it fix exchange rates.
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