2. Homestead, Inc. manufactures basic farm equipment in China, Spain, and the U.S. Each subsidiary 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:

Homestead China:

Amount

Owes to Spanish subsidiary

$ 6,000,000

Owes to U.S. parent

$ 8,000,000

Homestead Spain:

Owes to Chinese subsidiary

$ 5,000,000

Owes to U.S. parent

$ 6,000,000

Homestead U.S.:

Owes to Chinese subsidiary

$ 4,000,000

Owes to Spanish subsidiary

$ 8,000,000

Foreign exchange transaction costs

0.400%

a.How could Homestead net these intracompany debts?

b.How much would be saved in transaction expenses over the no-netting alternative if transaction costs are 0.400%?