Trueview plc, a group of companies controlled from the United Kingdom includes subsidiaries in India, Malaysia and the United States. As per the CFO’s forecast that, at the end of the June 2010 the position of inter-company indebtedness will be as follows:
- The Indian subsidiary will be owed Rs. 1,44,38,100 by the Malaysian subsidiary and will to owe the US subsidiary US$ 1,06,007.
- The Malaysian subsidiary will be owed MYR 14,43,800 by the US subsidiary and will owe it US$ 80,000.
Suppose you are head of central treasury department of the group and you are required to net off inter-company balances as far as possible and to issue instructions for settlement of the net balances.
For this purpose, the relevant exchange rates may be assumed in terms of £ 1 are US$ 1.415; MYR 10.215; Rs.68.10.
What are the net payments to be made in respect of the above balances?
Decision: Central treasury department will instruct the Malaysia subsidiary to pay the Indian subsidiary £1,27,209 and the US subsidiary to pay the Indian subsidiary £9,887.
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