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Wednesday, 12 September 2018

Merits and DeMerits of Counter Trading

Both countries and companies derive the following advantages from participating I'm counter trading.
- Preservation of hard currency.
- Improvement of balance of trade.
- Easy access to new markets and opportunities.
- Maintenance of export product prices.
- Building if capacity in manufacturing facilities.
- Indebtedness which worsens balance of payment position of countries is avoided.
- Critical raw materials required for production in times of scarcity of foreign exchange is accessible through counter trading.

Some of the demerits of counter trading are listed below;
- A country or company with the weak bargaining power/weak economic situation will loss out as the deal is bound to be counter productive.
- Could lead to perpetuating a country's dependency on foreign technology instead of developing indigenous technology.
- Determination of quality merchandise received in exchange is usually difficult.
- Stimulation of the economy from the price side is absent in counter trading.
- The bureaucratic bottlenecks associated with counter trading increase the cost of international trade.

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