{"id":9855,"date":"2017-02-03T02:31:55","date_gmt":"2017-02-03T02:31:55","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=9855"},"modified":"2019-01-05T01:41:25","modified_gmt":"2019-01-05T01:41:25","slug":"reading-countertrade","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/reading-countertrade\/","title":{"raw":"Reading: Countertrade","rendered":"Reading: Countertrade"},"content":{"raw":"\"An<\/a>\r\n\r\nSo far we have discussed global trade measured in dollars, euros, or other traditional currency, which is the way that everyone assumes business is conducted today. For example, here in the United States, we express the size of the global market, or Global World Product (GWP), as U.S. $107.5 trillion. If we lived in Japan, we\u2019d measure GWP using Japanese currency, yen (\u00a5).\r\n\r\nHowever, when we measure global trade\u00a0only<\/em>\u00a0in terms of currency-based transactions, we omit a portion of the market known as countertrade.\u00a0Countertrade\u00a0<\/strong>is a system of exchange in which goods and services are used as payment rather than money. There are many types of countertrading. Some of the most common types are described below:\r\n
    \r\n \t
  1. Barter<\/strong>: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Example:\u00a0One party trades salt for sugar\u00a0from another party.<\/li>\r\n \t
  2. Switch trading<\/strong>: Practice in which one company sells to another its obligation to make a purchase in a given country. Example:\u00a0Party A and Party B are countertrading salt for sugar. Party A may switch its obligation to pay Party B to a third party, known as the switch trader. The switch trader gets the sugar from Party B at a discount and sells it for money. The money is used as Party A's payment to Party B.<\/li>\r\n \t
  3. Counterpurchase<\/strong>: Sale of goods and services to one company in another country by a company that promises to make a future purchase of a specific\u00a0product from the same company in that country.\u00a0Party A sells salt to Party B. Party A promises to make a future purchase of sugar from Party B.<\/li>\r\n \t
  4. Buyback<\/strong>: This occurs when a firm builds a plant in a country, or\u00a0supplies technology, equipment, training, or other services to the country, and agrees to take a certain percentage of the plant's\u00a0output\u00a0as partial payment for the contract. Example:\u00a0Party A builds a salt-processing plant in Country B, providing capital to this developing nation. In return, Country B pays Party A with salt from the plant.<\/li>\r\n \t
  5. Offset<\/strong>: Agreement that a company will offset a hard-currency\u00a0purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and\u00a0raw materials\u00a0from the buyer of the finished product, or the assembly of such product in the buyer nation. Example:\u00a0Party A and Country B enter a contract where Party A agrees to buy sugar from Country B to manufacture candy. Country B then buys that candy.<\/li>\r\n<\/ol>\r\nCountertrading is common\u00a0among countries that lack sufficient hard currency (i.e., cash) or where other types of market trade are impossible. In developing countries, whose currency may be weak or devalued relative to another country's currency, bartering\u00a0may be the only way to trade. For example, if the value of Venezuela's\u00a0currency, the\u00a0bol\u00edvar fuerte,<\/i>\u00a0falls relative to the U.S. dollar (as it has in recent years), the exchange rate makes it unfavorable for Venezuela\u00a0to sell its oil\u00a0to the United States. Countertrade may be a much more financially beneficial arrangement.\r\n\r\n ","rendered":"

    \"An<\/a><\/p>\n

    So far we have discussed global trade measured in dollars, euros, or other traditional currency, which is the way that everyone assumes business is conducted today. For example, here in the United States, we express the size of the global market, or Global World Product (GWP), as U.S. $107.5 trillion. If we lived in Japan, we\u2019d measure GWP using Japanese currency, yen (\u00a5).<\/p>\n

    However, when we measure global trade\u00a0only<\/em>\u00a0in terms of currency-based transactions, we omit a portion of the market known as countertrade.\u00a0Countertrade\u00a0<\/strong>is a system of exchange in which goods and services are used as payment rather than money. There are many types of countertrading. Some of the most common types are described below:<\/p>\n

      \n
    1. Barter<\/strong>: Exchange of goods or services directly for other goods or services without the use of money as means of purchase or payment. Example:\u00a0One party trades salt for sugar\u00a0from another party.<\/li>\n
    2. Switch trading<\/strong>: Practice in which one company sells to another its obligation to make a purchase in a given country. Example:\u00a0Party A and Party B are countertrading salt for sugar. Party A may switch its obligation to pay Party B to a third party, known as the switch trader. The switch trader gets the sugar from Party B at a discount and sells it for money. The money is used as Party A’s payment to Party B.<\/li>\n
    3. Counterpurchase<\/strong>: Sale of goods and services to one company in another country by a company that promises to make a future purchase of a specific\u00a0product from the same company in that country.\u00a0Party A sells salt to Party B. Party A promises to make a future purchase of sugar from Party B.<\/li>\n
    4. Buyback<\/strong>: This occurs when a firm builds a plant in a country, or\u00a0supplies technology, equipment, training, or other services to the country, and agrees to take a certain percentage of the plant’s\u00a0output\u00a0as partial payment for the contract. Example:\u00a0Party A builds a salt-processing plant in Country B, providing capital to this developing nation. In return, Country B pays Party A with salt from the plant.<\/li>\n
    5. Offset<\/strong>: Agreement that a company will offset a hard-currency\u00a0purchase of an unspecified product from that nation in the future. Agreement by one nation to buy a product from another, subject to the purchase of some or all of the components and\u00a0raw materials\u00a0from the buyer of the finished product, or the assembly of such product in the buyer nation. Example:\u00a0Party A and Country B enter a contract where Party A agrees to buy sugar from Country B to manufacture candy. Country B then buys that candy.<\/li>\n<\/ol>\n

      Countertrading is common\u00a0among countries that lack sufficient hard currency (i.e., cash) or where other types of market trade are impossible. In developing countries, whose currency may be weak or devalued relative to another country’s currency, bartering\u00a0may be the only way to trade. For example, if the value of Venezuela’s\u00a0currency, the\u00a0bol\u00edvar fuerte,<\/i>\u00a0falls relative to the U.S. dollar (as it has in recent years), the exchange rate makes it unfavorable for Venezuela\u00a0to sell its oil\u00a0to the United States. Countertrade may be a much more financially beneficial arrangement.<\/p>\n

       <\/p>\n\n\t\t\t

      \n\t\t\t

      Candela Citations<\/h3>\n\t\t\t\t\t
      \n\t\t\t\t\t\t
      \n\t\t\t\t\t\t\t
      CC licensed content, Original<\/div>