RUNNING HEAD: Global Financing and Exchange Rate Mechanisms
Global Financing and Exchange Rate Mechanisms-Countertrade
Alyson Anderson
University of Phoenix Online
MGT 448/Global Business Strategies
Dr. Richard Dool
October 15, 2006
In pre-monetary societies, the most logical way of managing the material needs of a community was to distribute goods by bartering among the members according to need and surplus production. For example, if one family or group grew corn but another raised sheep, items could be traded between the groups as needed. This method was cumbersome, time-consuming, and could prove to be inequitable given the disparate nature of the items traded. The solution for this was the production of money, which basically leveled the playing field and gave every item an intrinsic value for purposes of trade. For local trading, this proved to be an excellent system with few drawbacks.
From a global trade standpoint there have proven to be some inherent problems in the basic system of providing currency for goods and services. As there is not a global currency with the same value for all players, exchanging the local currencies at a fair rate has proven to be difficult. In addition, many countries simply do not have the financial wherewithal to back up the value of their currency, making this system impossible to sustain at times.
One solution to this has proven to be a system similar to the ancient use of bartering; that of engaging in countertrade. Countertrade is basically a system of trade, including bartering, when goods or services are accepted in lieu of payment in currency for the purchase of goods or services. (FDIC, 2006) Reasons for choosing countertrade are numerous, but fall primarily into these areas:
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