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Counter Trade

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Manvik singhvi
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11 views

Counter Trade

Uploaded by

Manvik singhvi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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@ANURAG CONCEPTUALS

COUNTER TRADE IS A SYSTEM OF INETRNATIONAL TRADING IN WHICH


GOODS ARE EXCHANGED FOR OTHER GOODS, RATHER THAN FOR HARD
CURRENCY.
IT IS MODERNISED FORM OF BARTER SYSTEM.

IN OTHER WORDS, IT IS A BILATERAL AGREEMENT BETWEEN TWO


COUNTRIES, INVOLVES DIRECT EXCHANGE OF GOODS AND SERVICES HAVING
AN EQUIVALENT VALUE, BUT WITH NO CASH SETTLEMENT.

NO FOREIGM EXCHANGE IS REQUIRED IN SUCH TYPES OF AGREEMENTS AND


HENCE THE COUNTRIES DON’T HAVE TO FACE BALANCE OF PAYMENT
PROBLEM.

COUNTER TRADE TRANSACTIONS GENERALLY TAKE PLACE WHEN THE


COUNTRIES FACING FOREIGN EXCHANGE CRISIS AND FIND IT MORE
CONVENIENT TO EXCHANGE GOODS RATHER THAN USING FOREIGN
EXCHANGE AS A MEDIUM OF EXCHANGE.
 TYPES OF COUNTER TRADE
1. BARTER:- BARTER IS THE DIRECT EXCHANGE OF GOODS AND SERVICES HAVING EQUIVALENT
VALUE WITHOUT INVOLVING CASH BETWEEN TWO PARTIES IN A TRANSACTION.

2. COUNTER PURCHASE:- IT INVOLVES TWO SIMULTANEOUS SEPARATE TRANSACTIONS BETWEEN


TWO PARTIES. UNDER COUNTER PURCHASE, SALE OF GOODS AND SERVICES TO ONE COMPANY
IN OTHER COUNTRY BY A COMPANY THAT PROMISES TO MAKE A FUTURE PURCHASE OF A
SPECIFICPRODUCT FROM THE SAME COMPANY IN THAT COUNTRY.

3. COMPENSATION TRADE OR BUY-BACK :- COMPENSATION TRADE IS A FORM OF BARTER IN


WHICH ONE OF THE FLOWS IS PARTLY IN GOODS & PARTLY IN HARD CURRENCY. REPAYMENT IN
THE FORM OF GOODS INVLOVE THE GOODS DERIVED DIRECTLY OR PRODUCED BY THE
TECHNOLOGY, PLANT OR EQUIPMENT PROVIDED BY THE SELLER.
BUYBACK TRANSACTIONS OCCUR WHEN A FIRM BUILDS A PLANT IN A COUNTRY OR SUPPLIES
TECHNOLOGY, EQUIPMENT, TRAINING OR OTHER SERVICES TO THE COUNTRY AND AGREES TO
TAKE A CERTAIN PERCENTAGE OF THE PLANT’S OUTPUT AS A PARTIAL PAYMENT FOR THE
CONTRACT.
4. OFFSETS:- AN AGREEMENT BY ONE NATION TO BUY A PRODUCT FROM ANOTHER, SUBJECT TO
PURCHASE OF SOME OR ALL OF THE COMPONENTS AND RAW MATERIALS FROM THE BUYER OF
THE FINISHED PRODUCT, SUCH AGREEMENT IS KNOWN AS OFFSET.

5. SWITCH TRADING:- SWITCH TRADING IS A TRADE PRACTICE IN WHICH ONE COMPANY SELLS
TO ANOTHER ITS OBLIGATION TO MAKE A PURCHASE IN A GIVEN COUNTRY.
IT INVLOVES AT ATLEAST THREE PARTIES. THIS MEANS A COUNTRY MAY BARTER GOODS FROM
ANOTHER COUNTRY WHICH MAY BE OF NO USE TO ITSELF, SO IT SELLS THE GOODS TO OTHER
COUNTRY FOR HARD CURRENCY.

TO UNDERSTAND THE EXAPLEMS OF EACH TYPE OF COUNTER TRADE DISCUSSED ABOVE


VISIT OUR YOUTUBE CHANNEL “ANURAG CONCEPTUALS”
 ADVANTAGES OF COUNTER TRADE
1. COUNTER TRADE MAKES EXPORT MORE STABLE BECAUSE THERE ARE LESS
CHANCES OF FLUCTUATIONS IN DEMAND.

2. COUNTER TRADE HELP THE COUNTRIES WHO ARE FACING FOREIGN


EXCHANGE CRISIS.

3. THE DEVELOPING COUNTRIES CAN DEVELOP THEIR EXPORTS ALSO WITH THE
HELP OF COUNTER TRADE.

4. COUNTER TRADE ALLOWS DISPOSAL OF DECLINING PRODUCTS.


 DISADVANTAGES OF COUNTER TRADE
1. COUNTER TRADE RESTRICTS FREE FLOW OF GOODS, HENCE BENEFIT OF
COMPETITION IN INTERNATIONAL TRADE CAN’T BE AVAILED.

2. THOUGH IT IS MODERNISED FORM OF BARTER TRADE, YET IT SUFFERS FROM


ALL INHERENT LIMITATIONS OF BARTER.

3. TIME CONSUMING AND COMPLEX NEGOTIATIONS.

4. SOMETIMES UNNECESSARY IMPORTS HAVE TO BE MADE IN EXCHANGE FOR


THE EXPORTS.

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