- 8 Marks
AFM – Nov 2017 – L3 – Q5a – Treasury and Advanced Risk Management Techniques
Calculate the impact of undertaking multilateral netting for Paakro Ltd and its subsidiaries using expected exchange rates.
Question
Paakro Limited, based in Ghana, is the parent company of a group that contains three subsidiaries: Mangoase Limited based in Munich, Germany; Asaman Limited based in Atlanta, USA; and Nsawam Limited based in Tokyo, Japan. The following cash flows are due in three months’ time between Paakro Limited and its subsidiaries:
| Owed by | Owed to | Amount |
|---|---|---|
| Paakro Ltd | Nsawam Ltd | ¥3 million |
| Paakro Ltd | Asaman Ltd | $5 million |
| Mangoase Ltd | Asaman Ltd | $4 million |
| Mangoase Ltd | Nsawam Ltd | ¥7 million |
| Asaman Ltd | Nsawam Ltd | ¥2 million |
| Asaman Ltd | Paakro Ltd | $6 million |
| Nsawam Ltd | Mangoase Ltd | €12 million |
| Nsawam Ltd | Paakro Ltd | ¥5 million |
The mid-rate exchange rates in three months’ time are expected to be:
- GH¢4.0 = $1
- GH¢3.0 = €1
- GH¢3.5 = ¥1
Required:
Calculate, using a tabular format (transaction matrix), the impact of undertaking multilateral netting by Paakro Limited and its three subsidiary companies for the cash flows due in three months. (8 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cash Flow, Exchange Rates, Foreign Exchange, Multilateral netting, Netting table
- Level: Level 3
- Topic: Treasury and Advanced Risk Management Techniques
- Series: NOV 2017
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