Question

Cemerlang Inc. is a conglomerate company which has four subsidiaries located in Brunei, Malaysia, United Kingdom, and Switzerland. The exchange rates available for the company are MYR2.9000/BND, GBP0.4000/BND and BND1.2500/CHF. The following is the intersubsidiary payments matrix for Cemerlang Inc in multiple currency.

RECEIVING SUBSIDIARY (in millions)	PAYING SUBSIDIARY (in million)
	Brunei	malaysia	UK	Switzerland
Brunei		MYR58	GBP10	CHF12.5
malaysia	BND10		GBP12	CHF16.25
UK	BND20	MYR29		CHF20
Switzerland	BND15	MYR43.5	GBP6

a. Convert all the cash flows into Brunei Dollar (BND) and fill in the table cells below to
show the intersubsidiary payments matrix for Cemerlang Group. If the transaction cost
is 2%, how much the company need to pay (in BND) if they decided not to do any
netting?

RECEIVING SUBSIDIARY ( BND in millions)	PAYING SUBSIDIARY ( BND in million)
	Brunei	malaysia	UK	Switzerland
Brunei
malaysia	10
UK	20
Switzerland	15

Transaction cost in BND with no netting:_____________________

b. Perform multilateral netting by filling up the table below. If the transaction cost is 2%,
how much the company need to pay (in BND) if they decided to do multilateral
netting?

RECEIVING SUBSIDIARY (BND in million)	PAYING SUBSIDIARY (BND in million)
	Brunei	malaysia	UK	Switzerland	total receipt	total receipt/(payment)
Brunei
malaysia
UK
Switzerland
Brunei

Transaction cost in BND with multilateral netting:_____________________

Answer 1

Answer - A

Transaction Cost is 2% & Total Receipt ==> 220.9375BND

Transaction cost in BND with no netting

==> Total Receipt * Transaction Cost

==> 220.9375BND x 2%

==> 220.9375 x 0.02

==> 4.41875(BND)

Answer B

Brunei ==> 60.625-10-20-15 => 15.625(BND)

Malayasia ==>  60.3125-10-10-15 ==> 25.3125(BND)

U K ==> 55-20-10-15 ==> 10(BND)

Switzerland ==> 45-15-15-15 ==> 0(BND)  

The Payment of total receipt

==> 15.625+25.3125+10+0 ==> 50.9375(BND)

Transaction cost in BND with multilateral netting:

==> 50.9375(BND) x 2%

==> 50.9375 x 0.02

==> 1.01875(BND)

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