NETTING

NETTING PowerPoint PPT Presentation


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2. Bilateral Netting. GBP20 A B GBP15 What will you do?. . . 3. Bilateral Netting. A will owe B GBP 5Save on one transfer feeSave on GBP15 of Float. 4. Bilateral Netting.

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NETTING

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1. 1 NETTING

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

3. 3 Bilateral Netting A will owe B GBP 5 Save on one transfer fee Save on GBP15 of Float

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

5. 5 Bilateral Netting GBP/USD 2.00 A will owe B GBP20 B will owe A GBP15 A will owe B GBP5 Save one transfer Save float Save GBP15 FX

6. 6 ? Netting USD30 A B EUR30 GBP 20 USD40 C

7. 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. 8 Pre Netting Source: Coprocess SA

9. 9 Post Netting Source: Coprocess SA

10. 10 Multilateral Netting A multinational company has the following typical monthly inter-company flows Figures in Thousands Co A UK GBP 2,000 Co B France GBP 1,275   USD 1,750 EUR 3,500   Co C USA Peso 3,250 Co D Argentina

11. 11 Multilateral Netting Rates GBP/USD 1.8467 EUR/GBP .6931 GBP/Peso 5.6949 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.

12. 12 Multilateral Netting Payors Co A Co B CoC CoD Total GBP EUR USD Peso CoA Receivers GBP CoB EUR CoC USD CoD Peso Total

13. 13 Multilateral Netting Pays Receives Net Flows Eliminated Co A Co B Co C Co D Total

14. 14 Multilateral Netting Pays Receives Net Flows Elim Country A (3,275,000) 0 (3,275,000) 0 Country B (2,425,850) 2,947,636 521,786 2,425,850 Country C ( 947,636) 1,845,686 898,050 947,636 Country D (570,686) 2,425,850 1,855,164 570,686 Total (7,219,172) 7,219,172 (3,275,000) 3,944,172 Saving 3,275,000 5 transactions at GBP20 to 4 saving 1 = 20 Float 7,219,172 x .0475 x 3/365 = 2,818.44 Fx 3,944,172 x .001 = 3,944.17 6,782.61 =81,391.32 pa  

15. 15 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

16. 16 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

17. 17 Multilateral Netting Items Inter-company payables Inter-company receivables Third party payables Third party receivables Financial flows

18. 18 Multilateral Netting Structural Issues Country level Regional or global level Basically, who to include, what is allowed

19. 19 Multilateral Netting Policy Issues Billing currencies Credit period Settlement dates Exchange rates Conflict resolution

20. 20 Multilateral Netting Forms Bank Managed – Fully - Partially Company managed Internet- based

21. 21 Multilateral Netting Variations FX Matching Leading and Lagging

22. 22 FX Matching Sub 1 Sub 2 Sub 3 Net FX Sales Net FX purchases Sub 2 Sub 3 Sub 1

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