Global Financing & Exchange Rate

Global Financing and Exchange Rate

Shelia Chaney

MGT/448 Global Business

Bryan Spearman

April 1, 2010

Week 5

Global Financing and Exchange Rate

Week five assignment will be covering global financing and exchange rate on countertrade and the important in managing risks. Countertrade is the exchanging of goods or services that are paid for with the exchanging of a service. (Wes, 2002) Countertrade is a creative marketing tool that is committed to helping with the international sales contract and can be beneficial to all parties involved. Countertrade can generate the needs of hard currency to pay for products or repatriation of blocked funds. In addition, countertrade can give a competitive advantage, improve customer relationships, and create goodwill with the importing country's government.

In the 1970s countertrading became important in international trade as a result of the oil price increase (Wes, 2002). It expanded in the 1980s and by the middle of the decade it had spread worldwide. Later in 1984, the United States military offsets were the most common form of countertrading (Wes, 2002). During the second half of that decade, interest in countertrading softened as oil prices fell and the international business climate improved.

Global Financing

In this article, countertrade has six different forms and they are all used differently. They consists of barter, clearing arrangement, switch trading, counter purchase, buy-backs, and offsets. Barter is a trade in which goods are exchanged for other goods. This simply means goods that are sold or exchanged over seas to other business firms. Next countertrade is clearing arrangement. This is where two or more parties agree to purchase an agreed value of goods or services. This account could be credited or debited with the sales or purchases that were made during that transaction. Switch trading basically avoids inflexibility by allowing a country to

transfer its purchasing rights to a...