Question

A multinational corporation sets up a relationship with a single bank to process its multiple accounts from that bank. Interest is calculated across all accounts (with negative balances offsetting positive balances from other accounts), but funds remain in their original accounts. What is this practice called?

Answer 1

The practice is known as notional pooling, a financial management service for optimizing liquidity and reducing interest costs for corporations.

Step-by-step explanation:

The practice described by the student where a multinational corporation sets up a relationship with a single bank to handle its multiple accounts and where interest is calculated across all accounts (with negative balances offsetting positive balances from other accounts), but funds remain in their original accounts, is known as notional pooling. This financial management service allows companies to manage their liquidity more efficiently and reduce interest costs. It is typically offered by banks as part of their cash management services and can be an advanced tool for corporate treasury departments to optimize the cash flow and interest performance of their various subsidiaries.