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Presentation on theme: "NETTING."— Presentation transcript:


2 Bilateral Netting GBP20 A B GBP15 What will you do?

3 Bilateral Netting A will owe B GBP 5 Save on one transfer fee
Save on GBP30 of Float

4 Bilateral Netting GBP20 A B USD30 What will you do?

5 Bilateral Netting GBP/USD 2.00 A will owe B GBP20 B will owe A GBP15
Save one transfer Save float Save GBP30 FX

6 ? Netting USD30 A B EUR30 GBP USD40 C

7 Benefits of Multilateral Netting Quantitative
Reduced number of transfers Reduced FX trading volumes Reduced FX margins Reduced transfer costs Guaranteed payment dates (Float benefit) Centralised management Reduced banking costs

8 Pre Netting Source: Coprocess SA

9 Post Netting Source: Coprocess SA

10 Multilateral Netting A multinational company has the following typical monthly inter-company flows Figures in Thousands Co A UK GBP 2, Co B France GBP 1,275   USD 1,750 EUR 3,500   Co C USA Peso 3, Co D Argentina

11 Multilateral Netting First Step. Put flows, in currency, into the matrix. Note. Normally this step would be skipped

12 Payor Co A GBP Co B EUR Co C USD Co D Peso Receiver -

13 Multilateral Netting Rates GBP/USD 1.8467 EUR/GBP .6931
GBP/Peso Float: pre netting 3 days, post netting zero. Transfer costs GBP20 per transfer FX costs 0.1 of one percent Interest rate in GBP 4.75% Undertake a netting in GBP and calculate what the annual savings would be to the company of introducing a centralised netting system assuming this is an average month.

14 Multilateral Netting Next step Now convert into GBP terms

15 Payor Co A GBP Co B EUR Co C USD Co D Peso Total Receiver -

16 Multilateral Netting Next step
Now take the information and fill in the next matrix

17 Multilateral Netting Country Pays Receives Net Flows Eliminated A GBP
B EUR C USD D Peso Total

18 Multilateral Netting Now work out the savings Savings Transactions =
Float = Fx =

19 Benefits of Multilateral Netting Qualitative
Introduces discipline Standardisation of procedures Better quality and more timely information Clear time frames Reduced administration Inter- company dispute resolution Centralisation of exposures Other liquidity management activities

20 Typical Netting Cycle 5th 6th 7th 10th 11th 13th 14th
Cash F,cast Collection Trial net Adjustments Final Transactions Problem resolution due of data netting settled

21 Multilateral Netting Items
Inter-company payables Inter-company receivables Third party payables Third party receivables Financial flows

22 Multilateral Netting Structural Issues
Country level Regional or global level Basically, who to include, what is allowed

23 Multilateral Netting Policy Issues
Billing currencies Credit period Settlement dates Exchange rates Conflict resolution

24 Multilateral Netting Forms
Bank Managed – Fully - Partially Company managed Internet- based

25 Multilateral Netting Variations
FX Matching Leading and Lagging

26 FX Matching Sub 1 Sub 2 Sub 3 Net FX Sales Net FX purchases
USD for sale GBP for sale EUR for sale Matching Services EUR required GBP required USD required

27 Payors Co A GBP Co B EUR Co C USD Co D Peso Total Receiver - 947,636
2,000,000 947,636 2,947,636 1,275,000 570,686 1,845,686 2,425,850 3,275,000 7,219,172

28 Country Pays Receives Net Flows Eliminated A GBP (3,275,000) B EUR (2,425,850) 2,947,636 521,786 2,425,850 C USD ( 947,636) 1,845,686 898,050 947,636 D Peso (570,686) 1,855,164 570,686 Total (7,219,172) 7,219,172 3,944,172 3,275,000

29 Multilateral Netting 5 transactions at GBP20 to 4 saving 1 = 20
Savings 5 transactions at GBP20 to 4 saving 1 = Float 7,219,172 x x 3/ = 2,818.44 Fx 3,944,172 x = 3,944.17 6, =81, pa

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