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Global Financing And Exchange Rate Mechanisms.

892 words - 4 pages

Countertrade.Countertrade is a creative sticky sales project that might not otherwise happen due to currency barriers. Countertrade 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. Countertrade 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)Soft Currencies.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. (www.investopedia.com)Hard Currencies.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)Countertrade is an 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 countertrading, however others, such as offset, buyback, tolling and switch trading, have also evolved to meet the requirements of a more sophisticated world economy. All of these generally involve the exchange of goods or services to finance purchases, rather than using cash alone. "Countertrade, in its various forms, represents 10-15% of world trade." (www.uktradeinvest.gov)"The importance of countertrade as a trading tool has increased since early 1970s -especially in markets where there is a shortage of foreign exchange and countertrade may be the only effective marketing mechanism for doing business." (www.barternews.com)"One of the unique risks of countertrade transactions is that companies often find themselves handling products with which they are not familiar. This is probably the greatest risk in a countertrade transaction." (www.barternews.com)There are really two main currency risks. The first is non-convertibility, the currency will not be convertible when received or required. As many countertrade transactions are designed to avoid this problem, this is less of a risk than might be expected. The second...

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