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ACCA Strategic Professional · Advanced Financial Management · The role of the treasury function in multinationals

Subsidiary A (in the US) owes Subsidiary B (in the UK) USD 4.0m. B owes Subsidiary C (in Japan) USD 3.0m. C owes A USD 1.5m. All amounts are in the same currency and a central treasury applies multilateral netting. What is the total amount of cash that must actually be transferred between the subsidiaries after netting?

Only USD 2.5m needs to be transferred. Subsidiary A is the net payer of 2.5m, while B nets to receive 1.0m and C nets to receive 1.5m. Multilateral netting reduces gross payments of 8.5m to this single net settlement.

  1. AUSD 1.0m
  2. BUSD 2.5mCorrect
  3. CUSD 4.0m
  4. DUSD 8.5m

Explanation

Net positions: A pays 4.0 and receives 1.5, so A is net payer of 2.5. B receives 4.0 and pays 3.0, so B is net receiver of 1.0. C receives 3.0 and pays 1.5, so C is net receiver of 1.5. Total net payments equal 2.5 (receipts 1.0 + 1.5 = 2.5). The 8.5m figure is the gross total; 4.0m is only the largest single payable.

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