4. GeoTech Agriculture. GeoTech Agriculture, Inc. (U.S.) manufactures basic farm equipment in China, Spain, and Iowa in the United States. Each sub- sidiary has monthly unsettled balances due to or from other subsidiaries. At the end of December, unsettled intracompany debts in U.S. dollars were as follows:

Foreign exchange transaction spreads average 0.4% of funds transferred.

a. How could GeoTech net these intracompany debts? How much would be saved in transaction expenses over the no-netting alternative?

b. Before settling the above accounts, GeoTech decides to invest $6,000,000 of parent funds in a new farm equipment manufacturing plant in the new Free Industrial Zone at Subic Bay, The Philippines. How can this decision be incorpo- rated into the settlement process? What would be total bank charges? Explain.

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GeoTech, China: Owes $8 million to Spanish subsidiary Owes $9 million to lowa parent Geotech Spain, Owes $5 million to Chinese subsidiary GeoTech, Iowa: Owes $6 million to lowa parent Owes $4 million to Chinese subsidiary Owes $10 million to Spanish subsidiary