Global Financing and Exchange Rate Mechanisms Paper

Global Financing and Exchange Rate Mechanisms Paper

Counter-trade

Counter-trading is defined as the exchanging of goods or services that are already paid for, in whole or part, with other goods or services. (Wikipedia [W], 2007) Another way that you could think about counter-trading is by thinking about bartering. Bartering is very much like counter-trading as you are trading services or goods for the same in return. Speaking of bartering, that is actually one of the five main variants of counter-trading. The others are switch-trading, Counter-purchase, Buyback, and offset.

Bartering is defined as any type of trade that doesn’t use any medium of exchange, in which goods or services are exchanged for other goods and/or services. It can be bilateral or multilateral as trade. (Wikipedia [W], 2007) Bartering is most commonly used in societies where there is no system of money available. It can also be used where financial times are very tough in certain areas there is not a lot of money to go around. In finance, bartering means to trade with each other by using non money or “near-money” financial assets, kind of like U.S. Treasury bills.

• Switch Trading is the practice in which one company sells to another its obligation to make a purchase in a given country.

• Counter Purchase is the sale of goods and services to a country by a company that promises to make a future purchase of a specific product from the country.

• Buyback is the export of industrial equipment in return for products produced by that equipment.

Offset is an agreement that a company will offset a hard - currency purchase of an unspecified product from that nation in the future. An agreement by one nation to buy a product from another subject to the purchase of some or all of the components and raw materials from the buyer of the finished product, or the assembly of such product in the buyer nation.

It was first said that counter trading was something that just no other countries would be interested in getting into. Nobody thought that one country would have enough of anything to trade straight up with another country, without one of them feeling like they maybe got ripped off. All of this has changed recently though because as early as 1972, there were more than 15 different countries that were conducting counter trading techniques. Then, in 1979, that number grew to as many as 27 countries strong. In 1992, the number of countries that were involved