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  1. Hello sir,
    In netting, i understand that the receipt is used to make the payment, but the receipt and payment wont necessarily have to be on the same exact date, right?Couldn’t we just make a foreign currency account which could then be used for dealings in the foreign currency?
    And also the only difference between matching and netting is that in matching, the receipt isnt used to make the payment, and that we convert both the income and expense to and from our home currency?
    Regards

    • With netting, yes – you could use a foreign currency account and then just convert the net amount at the end of everything.

      With netting the receipt is used to make the payment and the balance converted.

      Matching is not the same in that both the income and the expense are left at risk, but they both increase or decrease together as the exchange rate changes.

      • Sir, in the BPP study text, under Matching receipts and payments, it is stated that a co. offsets its payments against its receipts in the foreign currency, and that it does not matter whether the currency strengthens or weakens against the co.’s domestic currency because there will be no purchase/sale of the currency. So I don’t understand how both the income and expense are left at risk. A foreign currency account was also suggested under matching.
        Netting in the book is defined as a process in which debit and credit balances are netted off and that its objective is to save transaction costs by netting off interco. balances before arranging payment. So is netting more of an intra-group/ related-party sort of thing?
        I would be really pleased if you could clarify the above. I got all confused reading the study text.
        Thanks in advance

  2. Hi,

    Just a quick clarification. When you explained “Matching” you used obtaining a $ borrowing as a second example. and making interest expense payments in $’s. However wouldn’t a $ borrowing put you at a forex risk as well?

    Thanks in advance.

    P.S. Keep up the good work. Your efforts are much appreciated.

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