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Pooling of Accounts in Forex

In a pooling account, a central point will consolidate, internally, certain balance sheet items (cash and short-term investments, for example) of several subsidiaries, in order to optimize their utilization and/or disbursement, as if they belonged to a single company.

Ideally, pooling will allow cash-rich subsidiaries to finance cash-poor ones, or permit a higher rate of return on short-term investment of larger amounts of surplus funds. Like netting programs, pooling requires a system of reporting cash positions and a centralized control point. Related advantages can be greater flexibility in shifting funds between subsidiaries, and a better analysis of cash needs and surpluses.

One-country pool accounts is a simple type of pooling account. It consists of subsidiaries in one country that use a single domestic currency. Each subsidiary will typically be an independent entity, with its own financial statements and bank relationships.

Fundamental to single-country pools, and other cash management programs, is that, if possible, local bank relationships not be disturbed, lest credit, and other needs fulfilled by local banks, be endangered.

Detailed cash forecasts are the basis of pool accounts. They are sent to the central control point regularly and in advance of expected borrowing needs, or cash surpluses. Conceivably, reports could be sent only when specific needs arise, but that would not permit optimum control.

The establishment of a local pool account can take different forms, and is affected by local taxation and exchange control regulations.

If, for example, four related subsidiaries in a country are to participate in a pooling account, the actual structure can take one of the following forms: the pool account holder is one of the four affiliates; surplus funds flow to (and borrowings flow from) an established, or new, account in its name; the pool account holder is a further-related company (often an international finance subsidiary, or other holding company).

Funds transferred to and from actual account participants move over that separate account; if, as is best, the pool account is centered at one bank, two further variations of bookkeeping accounts are possible - four actual working accounts are established, and a hypothetical bookkeeping account combines their aggregate debit, or credit balances.

Principally, that allows the bank to offset credit balances against its own short-term loans to group members, and may not result in less expensive credit on an interest rate basis--- one actual account is held jointly by four companies, and surplus funds are placed in it, or funds are borrowed from it.

Four bookkeeping, or hypothetical, accounts show the net debit, or credit position of the individual affiliate.

If the regulatory aspects permit, structure 2 is perhaps the optimal solution. Funds flow from an actual account of each subsidiary to an actual account of an independent control body - usually identical with the central control point.

The control point will receive cash forecasts, direct payments, and identify the internal flows (and have to allocate interest costs, or earnings among the participants).

Drawbacks in the setup occur if the central account holder is a foreign company, and exchange control regulations require extensive documentation for every transfer to, or from, the pool account.