International Business - Trade and Currency - Essay Example

The reason of this paper and the discussion is to prove that counter-trade has more benefits. Through illustration of examples I have tried to prove why counter- trade persist despite currency conversion is possible. Counter- Trade is a form of trade where the importer and the exporter agree to the certain terms where they exchange goods as payment to the goods they will receive. The exchange does not have to occur at the same time. O'Connell. J [2005]. According to London counter trade round table LCR "Counter trade is inherently an ad hoc activity - practice varies according to local regulations and requirements, the nature of the goods to be exported and the current priorities of thee parties involved.

Also, the terms used to describe the main modes of trading vary, often interchangeably causing confusion. " There are six division of counter trade. Barter: Exchange of goods or services directly for other goods or services. This does not involve money as a mode of payment. For example if Country A sells electric equipment to Country B in return for cotton - they will hold electric equipment back until they make good profit out of cotton. Switch trading: This is a kind of purchase where the importing Country is obliged to make future purchase from the exporting country.

For example, Country A at one time had a large surplus of Rice. If Country B exports goods to Country A, they can use Country A's rice to finance exports by selling it.Counter purchase: When a company in a specific country makes a sale of good or any services that country in return promises to make a future purchase of a particular product from that company.Buyback: This practice is most common with exports of process plant, mining equipment. It's an export of any industrial equipment and in return promise to paid by the outcome of the investment they will make with that product.

Offset: A company makes an agreement that they will offset hard - currency purchase of an unspecified product from the other exporting country in the future. For example a country buying an airplane may demand that some parts and components can be obtain in their local economy. Counter trade is also sometimes referred as compensatory trade as it is a kind of trade where both parties are putting them into an agreement, which compensate for hard currency.Counter trade Role in the world marketAccording to Vertariu [1972], that among all business countries there were around 15 of them who are pursuing counter- trade; and up till 1979 the figure reached to about 27; and by the start of 1990s there were almost 100 countries which preferred counter -trade as their choice of business.

Officials of the GATT organization have claimed that counter trade accounts have reached to about 5% of the world trade. The British Industry have exceeded to about 15%. As with east-west trade who are more popular with this kind of trade have raised the figure as high as 50%. A consensus of expert opinions Okaroafo [1989] has put the percentage of the value of world trade counter trade from 20% to 25%.Desirability of counter trade:According to (Choi S.R, Tschoegl, A. E., [2003]), counter trade is a safer option, as both parties of a counter-trade deal on the