Question

There are at least 6 proactive measures that can facilitate the management of operating exposure. Two of them are strongly linked in nature, namely reinvoicing centres and leading and lagging. How are these two related? Why is the reinvoicing centre so widely used today?

Answer 1

Reinvoicing centres are one of an important way of management of operational exposure in which third party corporate subsidy will manage with all the transaction exposure in the domestic country and it will be helping in elimination of risk related to fluctuation of the currency because all the risk have been shifted to reinvoicing centres. These centres will be facing up with all the transaction exposure.

Lagging and leading are two strategies which will be playing with the timing of the the cash flows in association with interpretation of Forward exchange rate and it means paying off the payables early aur dealing of the payables in order to reduce the loss related with operational exposure.

Leading and lagging along with reinvoicing centre are important in order to reduce the risk associated with the operational exposure and they will be trying to engage into delaying of the risk or shifting of the risk.

Reinvoicing centres are widely used today because it have multiple benefits of being a non resident, and availing the tax benefit exemptions. The overall centralised management gains of transaction exposure are remaining with the main entity in case of reinvoicing centres and it will be leading to going down of this and heading of the foreign exchange contracts so it is highly popular.