Page 211 - AFM Integrated Workbook STUDENT S18-J19

Hedging foreign exchange risk

Netting and matching

9.1 Introduction

Netting and matching are carried out to reduce the scale of external
hedging required.

Illustration 5

For example, Group X is expecting to receive $10 million in one subsidiary and
pay $6 million at the same time in another subsidiary. Clearly the group only
has a net exposure of a receipt of $4 million.

The terms ‘netting’ and ‘matching’ are often used interchangeably but strictly
speaking they are different.

 Netting refers to netting off group receipts and payments, as in the example
above

 Matching extends this concept to include third parties such as external suppliers
and customers

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