Distinguish between the following: Netting and matching in management of forex

Difference between Netting and Matching in management of Forex Netting : Under this method, gross receipts and payments of all transactions among the parent firm and subsidiaries should be adjusted and only net amounts should be transferred. This technique is called netting. 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. Netting refers to netting off group receipts and payments, as mentioned in the given example. This again involves centralization of data at the corporate level, selection of the time period at which netting is to be done, and choice of the currency in which netting is to be done. The currency could be the home currency of the firm. Netting reduces costs of remittance of funds, and increases control of intra-firm settlements. It also produces savings in the form of lower float (funds in the pipe-line) and lower exchange costs. Matching : It is a process whereby cash inflows in a foreign currency are matched with cash outflows in the same currency with regard to, as far as possible, amount and maturity. Matching is an extension of multilateral netting with the difference that matching includes also third parties apart from the ones operating within group. The aim of the company in this case is to negotiate match-able due dates and amounts in the same currencies. Then the payment received in one currency (cash inflow) can be used for the payment to other party in the same currency (cash outflow) if due date of the first transaction precedes to the due date of the second transaction. Thus the need of use of derivative instruments to hedge the foreign exchange exposure is restricted only for hedging of final balance of these cash flows. The assumption of matching is that we do have opposite cash flows in one currency.