Financial Switch
From Supply Chain Management Encyclopedia
Russian: Финансовый свитч
Financial Switch (Simplified Flow Chart)[1]
LEGEND: In case of the financial switch (participants: Company А = USA; Company В = Chili; Company С = Ukraine) the switch is developed as following:
- 1) Company В (Chili) needs to renovate its mining equipment to use on its copper mines. Traditionally, such mining equipment is bought in USA from the Company А. There is an obstacle for this transaction: Company А insists to receive payment in dollars, but the Company В has not a dollar amount necessary this time.
- 2) Company В has found the Company С supplying Ukrainian copper plants with the copper ore concentrate. However, this product has a relatively low liquidity to be an effective product for a compensating transaction.
- 3) There are two possible actions of the Company С:
- 1 – Company С directly sells this product on its domestic market for grivna (Ukrainian national currency) and, then, converts the grivna revenue in the hard currency (dollar) with a disagio, to accelerate the deal with a clearing broker.
- 2 - Company С releases the product to a switch trader on consignment basis with a discount depending on the time of consignment and receives in exchange the hard currency (dollar).
- 4) Company С pays the contract delivering the said mining equipment from company А to company В.
References
- ↑ Черенков В.И. Внешнеэкономическая деятельность предприятия: основные операции (серия «Высшее образование»). Ростов-на-Дону «ФЕНИКС», 2007 - с. 97-102. (с авторским изменением дизайна)