Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use BILATERAL netting to reduce the number of foreign exchange transactions by half.
D)None of the above

Question

Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use BILATERAL netting to reduce the number of foreign exchange transactions by half. 
D)None of the above

Quizplus · Accepted Answer

Bilateral netting involves consolidating foreign exchange transactions between subsidiaries to reduce the overall number of transactions. In this case, we can see that Subsidiary 1 has a USD to EUR transaction while Subsidiary 2 has an EUR to USD transaction. These two can be bilaterally netted to eliminate the need for one transaction. Similarly, Subsidiary 1 has an EUR to JPY transaction while Subsidiary 3 has a JPY to EUR transaction. These two can also be bilaterally netted. However, the remaining transactions cannot be bilaterally netted with any others. Therefore, the best choice is A.