Reference no: EM132904946

A Quebec-based company works in the import/export of pharmaceuticals. For several months, it has to respond to interesting orders, which comes to it from a new customer in Africa. It therefore asks its European supplier to ship sufficient quantities of products. As transactions are made in Euros, the company often loses money with each conversion of payments received and each foreign exchange acquisition with its bank. To remedy this, it decided to explore the possibility of exercising currency exposure netting for the year, according to the following data.

Here is an accounts table for 3 of its transactions.

Accounts A/R A/P

May Eur 1115000 Eur 5000
June Eur 10000 Eur 500000
July Eur 100000 Eur 10000

Cost of conversion = 1%

a) Calculate costs in case of payment without netting.

b) Calculate costs in case of payment netting.

c) Conclude about the advantage/disadvantage netting secures to the company.