Which choice states the passage’s main idea?

Multilateral netting reduces the balances that must be transferred by offsetting obligations on a shared ledger while preserving the need for rules and trust. (The passage shows claims being offset into net balances, then stresses that common rules, settlement, and reliable payment still matter.)

Why could one participant’s failure to pay its net amount affect other participants?

The expected receipts of net creditors depend on the net debtor supplying the amount due. (The text warns that one missing payment can block what others should receive, linking the debtor’s payment to the creditors’ receipts.)

What does “net position” mean in the market example?

the final amount due or receivable after obligations are offset (The ledger adds what each participant is owed and subtracts what it owes, leaving one final balance called its net position.)

After the obligations are offset, how much must the mill pay?

20 credits (The mill is owed 60 and owes 80, so the passage calculates its net payment as 20 credits.)

When Debts Travel in a Circle: Level 5 Reading Comprehension Questions

At the end of a market day, three cooperatives compare their accounts. The mill owes the bakery 80 credits for lunches. The bakery owes the bicycle shop 70 for deliveries. The bicycle shop owes the mill 60 for repairs. If every obligation is settled separately, three payments must travel around the circle.

A clearing process first places all approved obligations on one ledger. For each participant, it adds what others owe and subtracts what that participant owes. The mill is due 60 but owes 80, so its net position is a payment of 20. The bakery is due 80 and owes 70, so it receives 10. The bicycle shop is due 70 and owes 60, so it also receives 10. Only 20 credits need leave the mill, divided between the two net receivers, instead of every gross claim moving separately.

This arithmetic is called multilateral netting. It reduces the amount that must change hands, but it does not erase the original trade or make trust unnecessary. Participants need common rules for admitting obligations, correcting errors, and deciding when settlement is final. They also need a plan for a participant that cannot pay its net amount, because one missing payment can prevent others from receiving theirs.

Clearing therefore converts a web of claims into a smaller set of balances. Its efficiency comes from coordination: each participant accepts the same ledger, deadline, and method. The circle becomes simpler not because any debt vanishes, but because opposite claims are counted together before money moves.

Comprehension questions