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I cannot understand the final who pays and who receives. Multi drop (BPP55) Singapore has to pay out 16.4m Euro equivalent of forex and receives 1,94m To me that says that Singapore requires an injection of 16.4m from other sources. The answer shows it as Singapore paying that to Europe. The other question MJY showed they had done the internal companies netting forex while multidrop netted with the external companies. Neither gave an instruction of how to net. Is that up to the examiner on the day how they mark it? Which way is right? This should really be a very simple exercise but as usual someone has made it complicated for no reason at all……Ok I think I got part of it…if your net is a payment then you must pay the netting centre and if your net is positive the netting centre pays you? I got that off the treasury alliance article on netting….But the part of intercompany and external i still don’t know. Cannot see in the 2 questions where they differentiate in requirement
Firstly, you are reading too much into things. If I owe you $100 and you owe me $20, then if we net off I pay you $80. Where the $80 I pay you comes from is irrelevant (presumably I have the cash). The importance of netting when there are different currencies involved is simply to cut down on the number of transactions and therefore save transaction costs and reduce the exchange rate risk.
MJY and Multidrop were set by different examiners, which is why the answers are set out differently. However the end result in the same in both cases and it doesn’t matter which way you set it out.
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