Question

A company has affiliates in seven countries. Each affiliate enters into transactions with the other affiliates in the course of business. The company has determined that on average a remittance from one affiliate to another costs $30. (This cost includes bank fees for international funds transfer, costs in each affiliate to process the payment/receipt, and average cost to exchange currency.) Except for this cost, the information for each question is specific to that question.

The following table indicates the aggregate quarterly invoices (in US$) between each affiliated company for a recent quarter.

	Payee (thousands)
Payor (thousands)		Australia	Belgium	Germany	Japan	Singapore	UK	US
	Australia		211	9	217	282	144	197
	Belgium	139		228	99	170	298	272
	Germany	278	160		59	294	65	220
	Japan	93	94	298		6	296	186
	Singapore	15	238	190	240		95	9
	UK	70	260	47	86	281		247
	US	125	294	153	220	272	216

If the affiliates use bi-lateral payment netting, what payments should be made?

What is the total transaction cost for all payments with bi-lateral payment netting?

If the company uses multi-lateral payment netting, what payments should be made?

What is the total transaction cost for all remittances with multi-lateral payment netting?

Answer 1

in affiliate use bi lateral payment following payment should be made ( payment receipt in thousands)

aus receive 72 from Belgium

aus pay 269 to Germany

Aus receive 124 from japan

Aus receive 267 from Singapore

Aus receive 74 from uk

Aus receive 72 from us

Belgium receive 68 from Germany

Belgium receive 5 from japan

Belgium pay 68 to Singapore

Belgium receive 38 from uk

Belgium pay 22 to us

Germany pay 239 japan

Germany receive 104 Singapore

Germany receive 18 uk

Germany receive 67 us

japan pay 234 Singapore

japan receive 210 uk

japan pay 34 us

Singapore pay 186 uk

Singapore pay 263 us

uk receive 31 us

TOTAL COST OF ABOVE TRANSACTION = 21*30 =630

Following payment in case of multi lateral payment

all above payment will remain same except transaction between Belgium and Germany and Belgium and Singapore can be netted off hence coast will be 20*30= 600