Question

Explain two benefits of netting. How can a centralized cash management system be beneficial to an MNC located in the Caribbean and South America?

Answer 1

• Netting: Netting refers to regulating the inflows and outflows of cash to control and minimize the cost of transactions and maintenance. Such a method requires constant monitoring of the transactions for regulating low cost.  benefits of netting: Netting helps a company to save cost and time by minimizing the number of transactions and maintaining low cost on every transaction. In the case of a transaction between the banks of two different countries, it reduces the transactions of foreign exchange through fewer flows. Netting also helps banks and firms in predicting inflows and outflows in the situation of stability. Benefits of the centralized cash management system to multinational companies: It helps the multinational companies in performing netting that saves time and investment. It also smoothens the transaction between the two companies involved in the transaction, which is the parent company and subsidiary. It facilitates generating returns upon the short term investment of a subsidiary company. The other benefit is that it improves the budgeting system of organization, and acquired funds are used in optimum form.