Question 1

A firm sells some products to a foreign country. The foreign country pays the firm in dollars but in exchange the firm agrees to spend some of the proceeds from the sale on textiles produced by the foreign country. What type of countertrade arrangement are the two parties engaged in?
A) switch trading
B) buyback
C) counterpurchase
D) barter
E) compensation

Accepted Answer

In a counterpurchase arrangement, the seller agrees to purchase goods or services from the buyer as part of the sales agreement. Here, the firm agrees to spend some of the proceeds on textiles from the foreign country, which fits the definition of counterpurchase.

Question 2

Saudi Arabia agreed to purchase 5,000 air conditioning systems from Air-Cool Corp. with payment in the form of crude oil that is discounted 22 percent below posted world oil prices. This transaction is a form of
A) countertrade.
B) acquisition.
C) licensing.
D) greenfield venture.
E) piggyback marketing.

Accepted Answer

This transaction is a form of countertrade, which involves exchanging goods or services instead of using cash or credit. In this case, Saudi Arabia is trading crude oil for air conditioning systems.

Question 3

A type of countertrade where a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them is called
A) barter.
B) switch trading.
C) offset.
D) buyback.
E) compensation.

Accepted Answer

Switch trading involves a third-party trading house that buys counterpurchase credits from a firm and sells them to another firm that can utilize them more effectively.

Question 4

A buying agreement where the exporting country can fulfill the agreement with any firm in the country to which the sale is being made is called a(n)
A) switch trade.
B) offset.
C) buyback.
D) arbitrage.
E) barter.

Accepted Answer

An offset is a type of trade agreement where the exporting country can fulfill the agreement with any firm in the importing country, allowing flexibility in choosing the partner for fulfilling the trade obligations.

Question 5

A range of barterlike agreements by which goods and services are traded for other goods and services when they cannot be traded for money is known as
A) countertrade.
B) carry trade.
C) free trade.
D) counter sale.
E) countervailing duty.

Accepted Answer

Countertrade refers to a range of barterlike agreements where goods and services are exchanged for other goods and services instead of money.

Question 6

Consolidated Petroleum negotiated a deal with Saudi Arabia in which Consolidated Petroleum would build several refineries in Saudi Arabia and receive oil as partial payment over a 20-year period. This is an example of
A) switch trading.
B) a buyback.
C) a counterpurchase.
D) an offset.
E) barter.

Accepted Answer

A buyback is a type of countertrade where a company builds a facility in a foreign country and receives a portion of the output as payment.

Question 7

What is a disadvantage of barter as a countertrade arrangement?
A) It is a very complex arrangement.
B) If goods are exchanged simultaneously, one party ends up financing the other.
C) Firms engaged in barter run the risk of having to accept goods they do not want or cannot use.
D) It involves huge cash transactions.
E) It cannot be used in transactions with trading partners who are not creditworthy.

Accepted Answer

In barter, there is a risk that firms may have to accept goods they do not want or cannot use, as it involves direct exchange of goods without using money.

Question 8

Rather than use cash, Indonesia traded textiles with the United States in exchange for corn. This is an example of which form of countertrade?
A) switch trading
B) counterpurchase
C) buyback
D) barter
E) offset

Accepted Answer

Barter is a direct exchange of goods or services without using money, which is what occurred in the trade between Indonesia and the United States.

Question 9

The direct exchange of goods and/or services between two parties without a cash transaction is referred to as
A) switch trading.
B) counterpurchase.
C) barter.
D) offset.
E) buyback.

Accepted Answer

Barter is the direct exchange of goods and/or services between two parties without the use of money.

Question 10

Countertrade arose in the 1960s as a way to purchase imports for ________, whose currency was nonconvertible.
A) the United States
B) the Soviet Union
C) Germany
D) Japan
E) African countries

Accepted Answer

Countertrade became popular with the Soviet Union because their currency was nonconvertible, making it difficult to engage in international trade using traditional currency exchanges.

Question 11

One drawback of a countertrade agreement is that
A) it fails to give firms a way to finance an export deal.
B) it requires an in-house trading department to be maintained, which can be expensive and time-consuming.
C) it is detrimental to the economy of the importing country.
D) developing nations may have trouble raising the foreign exchange necessary to pay for imports.
E) it is not an acceptable means of trading in most developing countries.

Accepted Answer

Countertrade agreements often require companies to maintain an in-house trading department to manage the complex transactions, which can be costly and time-consuming.

Question 12

Countertrade is most attractive for
A) small exporters.
B) large multinational enterprises.
C) only U.S.-based firms.
D) any firm in democratic nations.
E) new companies.

Accepted Answer

Countertrade is most attractive for large multinational enterprises because they have the resources and global reach to manage the complexities and risks associated with countertrade deals, such as barter or offset agreements.

Question 13

Energy Source International builds a plant in Switzerland and agrees to take a certain percentage of the plant's output as partial payment for the contract. This type of countertrade is called a(n)
A) counterpurchase.
B) offset.
C) switch trade.
D) buyback.
E) barter.

Accepted Answer

A buyback is a type of countertrade where the seller agrees to accept a portion of the output produced by the plant as payment.

Question 14

Full-Sole Shoes concludes a counterpurchase agreement with Japan for which it receives some counterpurchase credits. Full-Sole Shoes does not want any foreign goods, however, so it sells the credits to a third-party trading house at a discount. The trading house finds a firm that can use the credits and sells them at a profit. This is an example of
A) barter.
B) switch trading.
C) an offset.
D) a buyback.
E) compensation.

Accepted Answer

Switch trading involves selling counterpurchase credits to a third party, which then finds a buyer for those credits, as described in the scenario.

Question 15

From an exporter's perspective, why is an offset more attractive than a straight counterpurchase agreement?
A) It is the simplest countertrade arrangement.
B) It gives the exporter greater flexibility to choose the goods that it wishes to purchase.
C) It allows the use of a specialized third-party trading house.
D) It gives the exporter counterpurchase credits, which can be used in another country.
E) It allows direct exchange of goods and/or services between two parties without a cash transaction.

Accepted Answer

An offset agreement allows the exporter to have more flexibility in selecting the goods they wish to purchase, unlike a straight counterpurchase which requires the exporter to buy specific goods from the importing country.

Question 16

A drawback of countertrade is that
A) it fails to enable firms to finance an export deal.
B) it is detrimental to the economy of the importing country.
C) developing nations have trouble raising the foreign exchange necessary to pay for imports.
D) it does not allow firms to invest in an in-house trading department dedicated to arranging and managing deals.
E) it may involve the exchange of poor-quality goods that cannot be disposed of profitably.

Accepted Answer

Countertrade can result in the exchange of goods that are difficult to sell or of poor quality, leading to potential losses for the firms involved.

Question 17

To cater to the growing demand for luxury automobiles, Italy agrees to buy 5,000 cars from Comfort Cars Inc. in exchange for 5,000 barrels of oil. Since Comfort Cars Inc. is not seen as creditworthy, Italy decides to make this a one-time-only deal. What form of countertrade is Italy using?
A) counterpurchase
B) offset
C) switch trading
D) barter
E) buyback

Accepted Answer

Barter is a direct exchange of goods or services without using money, which is exactly what Italy is doing by exchanging cars for oil.

Question 18

The most restrictive countertrade arrangement is
A) counterpurchase.
B) offset.
C) barter.
D) switch trading.
E) buyback.

Accepted Answer

Barter is the most restrictive countertrade arrangement because it involves a direct exchange of goods and services without the use of money or third-party intermediaries, limiting flexibility and requiring a precise match of needs between the trading parties.

Question 19

What is a characteristic of countertrade?
A) The governments of developing nations sometimes insist on a certain amount of countertrade.
B) Countertrade is a means of structuring an international sale when conventional means of payment are cost-effective.
C) Nonconvertibility is an advantage for exporters.
D) Nonconvertibility implies that the exporter will be paid only in his or her home currency.
E) Most exporters desire payment in a currency that is not convertible.

Accepted Answer

Countertrade is often used by developing nations that may not have sufficient foreign currency reserves, so they insist on countertrade to facilitate international trade.

Question 20

The type of countertrade where a firm agrees to purchase a certain amount of materials back from a country to which a sale is made is called
A) barter.
B) counterpurchase.
C) compensation.
D) switch trading.
E) buyback.

Accepted Answer

The answer of The type of countertrade where a firm...

Quiz 14: Exporting, Importing, and Countertrade

A firm sells some products to a foreign country. The foreign country pays the firm in dollars but in exchange the firm agrees to spend some of the proceeds from the sale on textiles produced by the foreign country. What type of countertrade arrangement are the two parties engaged in?

Saudi Arabia agreed to purchase 5,000 air conditioning systems from Air-Cool Corp. with payment in the form of crude oil that is discounted 22 percent below posted world oil prices. This transaction is a form of

A type of countertrade where a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them is called

A buying agreement where the exporting country can fulfill the agreement with any firm in the country to which the sale is being made is called a(n)

A range of barterlike agreements by which goods and services are traded for other goods and services when they cannot be traded for money is known as

Consolidated Petroleum negotiated a deal with Saudi Arabia in which Consolidated Petroleum would build several refineries in Saudi Arabia and receive oil as partial payment over a 20-year period. This is an example of

What is a disadvantage of barter as a countertrade arrangement?

Rather than use cash, Indonesia traded textiles with the United States in exchange for corn. This is an example of which form of countertrade?

The direct exchange of goods and/or services between two parties without a cash transaction is referred to as

Countertrade arose in the 1960s as a way to purchase imports for ________, whose currency was nonconvertible.

One drawback of a countertrade agreement is that

Countertrade is most attractive for

Energy Source International builds a plant in Switzerland and agrees to take a certain percentage of the plant's output as partial payment for the contract. This type of countertrade is called a(n)

From an exporter's perspective, why is an offset more attractive than a straight counterpurchase agreement?

A drawback of countertrade is that

To cater to the growing demand for luxury automobiles, Italy agrees to buy 5,000 cars from Comfort Cars Inc. in exchange for 5,000 barrels of oil. Since Comfort Cars Inc. is not seen as creditworthy, Italy decides to make this a one-time-only deal. What form of countertrade is Italy using?

The most restrictive countertrade arrangement is

What is a characteristic of countertrade?

The type of countertrade where a firm agrees to purchase a certain amount of materials back from a country to which a sale is made is called