13.5: Countertrade Flashcards
What is countertrade?
Countertrade is structuring an international sale when conventional means of payment are difficult, costly, or non-existent, often used when currency convertibility is restricted.
What does nonconvertibility of a currency imply in the context of countertrade?
Nonconvertibility implies that the exporter may not be paid in their home currency and must accept payment in a form that may not be immediately useful.
How did the Royal Bank of Canada innovate in countertrade?
The Royal Bank of Canada became the first Canadian bank to facilitate cashless transactions by accepting teak from Thailand in exchange for its commodities and services.
What is barter in the context of countertrade?
Barter is a direct exchange of goods and/or services between two parties without a cash transaction.
How has countertrade evolved over time?
Countertrade has evolved from simple barter to diverse arrangements like counterpurchase, offset, switch trading, and compensation or buyback.
What is a counterpurchase agreement?
Counterpurchase is a reciprocal buying agreement where a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.
What is an offset agreement?
Offset is an agreement where one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale, providing the exporter with flexibility to choose the goods to purchase.
What is switch trading?
Switch trading involves using a specialized third-party trading house to sell counterpurchase credits or to purchase goods with counterpurchase credits from another firm.
What are the advantages of countertrade?
Countertrade can finance export deals when other options are not available and provide access to certain markets.
What are the disadvantages of countertrade?
Countertrade can involve the exchange of poor-quality goods, require a firm to invest in a trading department, and may not provide the preferred hard currency.
What are the implications for businesses engaging in countertrade?
Businesses must be aware of risks like default on payment, the need for accurate documentation, and the potential for nonpayment due to importer’s financial difficulties.
