Global Financing and Exchange Rate Mechanisms: Counter Trade

Topics: International trade, Currency, Money Pages: 3 (940 words) Published: September 29, 2008
Global Financing and Exchange Rate Mechanisms: Counter trade Counter trade is a creative sticky sales project that might not otherwise happen due to currency barriers. Counter trade is an umbrella term for a variety of unconventional reciprocal trading arrangements. It often occurs between developed and developing nations, but it also occurs between one developing nation and another( Nelson, 1999). It is the trade between two countries in which goods are traded for other goods rather than for hard currency. Counter trade is often the solution for exporters that may not be able to be paid in his or her home currency and according to the text few exporters would desire payment in a currency that is not convertible. "Sometimes both parties are happy with the goods they receive, other times one country will liquidate the received asset, ultimately receiving cash in the deal. This is also referred to as "using barter to complete a trade." (www.investopedia.com) Currencies.

Soft Currency another name for "weak currency," there is very little demand for this type of currency and values often fluctuate. Currencies from most developing countries are considered to be soft currencies. Hard currency is a currency, usually from a highly industrialized country, that is widely accepted around the world. The U.S. Dollar and the British Pound are good examples of a hard currency. (www.investopedia.com)

Counter trade is a general term covering a wide range of commercial mechanisms for reciprocal trade. Reciprocal trading (two-sided trading, trade in return) occurs when the trade customers is also a supplier. The reciprocal trading arrangements may or may not be formally linked. In practice, reciprocal trade may strengthen an existing trading relationship, and may even create mutual dependencies, which may create new trade relationship. Barter is probably the oldest and best known example of counter trading, however others, such as offset, buyback, tolling...
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