TLC Inc manufactures pharmaceutical products. The organisation exports through a worldwide network of affiliated organisations. Its headquarters are in the United States, but there is a large volume of inter-organisation sales, dividend flows and fee and royalty payments. These inter-organisational payments are made in US$. An example of payment flows among four affiliates for the past six months is shown in the diagram below:

At present, each affiliate has control over its own cash management and foreign currency hedging decisions. The Corporate Treasurer is considering centralising cash and foreign currency management.
Required

(a) Explain, briefly, the characteristics of a bi- or multilateral netting system and, using the information in the diagram, advise the Corporate Treasurer of the pattern of cash flows that would have been evident if such a system had been in operation in TLC Inc.

(b) Discuss the advantages TLC Inc might obtain from centralising international cash management and foreign exchange management and advise on the potential disadvantages of such a change in policy.