This paper discusses counter trade mechanisms, which are a part of the exchange of currency for countries that do not allow free conversion of currency.
Written in 2005; 1,030 words; 4 sources; APA; $ 36.95
Paper Summary:
This paper explains that counter trade mechanisms come in many different forms; the most common form, used especially among lesser-developed countries, involves businesses exchanging commodities without using money, with a bank managing the exchanges. The author describes other forms of counter trade, including buy-back, getting partial cash and partial goods payment for services or good offered; offset, selling a high-dollar contract of equipment to a company in another country, which, in return, agrees to purchase a high-dollar contract of goods back from the country; and bilateral trading agreements between foreign governments. The paper relates that, although there are benefits, there are risks with this form of exchange mechanisms; therefore, it is important to have an agreement in place that meets the legal requirements of both countries involved.
From the Paper:
"When a country has freely convertible currency it means that people, both residents and nonresidents of the country, are able to buy an unlimited supply of currency. Conversely, a country is considered to have nonconvertible currency when people, whether residents or nonresidents of the country, are unable to convert foreign currency. In between being a nonconvertible and a convertible country regarding foreign currency is externally convertible. Externally convertible means that nonresidents of the country can freely convert their foreign currency in unlimited amounts."
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