Global Financing & Exchange Rate Mechanisms Paper

Essay by jtcole123University, Bachelor'sA+, June 2004

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Global Financing and Exchange Rate Mechanisms


Countertrade is a trade between two countries by which goods are exchanged 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." (

An example of countertrade is, the former Soviet Union would often countertrade, agreeing to trade, say, Soviet oil for another country's vehicles.

After researching I have learned that countertrade is an umbrella 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." (

"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." (

"One of the unique...