Netting

Bilateral netting offsets obligations between two parties. Multilateral netting uses a coordinated arrangement across several parties, often within a group. It can reduce the number and size of foreign-exchange conversions, transfer costs and financing requirements. Legal enforceability, currencies, dates, controls and local restrictions must be considered. Netting does not eliminate the group's residual external exposure and should not be confused with accounting offsetting rules, which have their own requirements. A central treasury may coordinate the process and identify the net amount that still needs hedging.