Product Switch

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*  1) Company В has found a seller, Company A, of the tea processing and packaging equipment in United Kingdom, but the Company А, prepared an appropriate contract agrees to receive a payment in hard currency only (in UK pounds, preferably).
*  1) Company В has found a seller, Company A, of the tea processing and packaging equipment in United Kingdom, but the Company А, prepared an appropriate contract agrees to receive a payment in hard currency only (in UK pounds, preferably).
*  2) Company В has found a buyer, Company С, for a compensating product (Ceylon tea) to pay the export contract prepared by Company A. In Russia, where after  the USSR collapse (the main tea consumption in the USSR was provided by the Georgian tea) the tea became a rather high liquid product. Besides, due to exporting oil, gas, and weapons they buy hard currency in Russia without problems,
*  2) Company В has found a buyer, Company С, for a compensating product (Ceylon tea) to pay the export contract prepared by Company A. In Russia, where after  the USSR collapse (the main tea consumption in the USSR was provided by the Georgian tea) the tea became a rather high liquid product. Besides, due to exporting oil, gas, and weapons they buy hard currency in Russia without problems,
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*  3) Russian Company С pays the export contract prepared by Company A delivering the tea processing and packaging equipment from United Kingdom and, as the compensating product, receives the Ceylon tea delivery from Company В (Sri Lanka). Settlements for such transactions are often effectuated using an intermediary playing a role of a transaction guarantor. Switch traders<ref> </ref> and clearing brokers<ref> As usual [http://www.investopedia.com/terms/c/clearingbroker.asp], the clearing broker is understood as a member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction. In the context of countertrading, the clearing broker (organization) plays almost the same roles. Especially, in case of switch transactions, the clearing broker could be an intermediary who converts a local (soft) currency using a currency exchange. The same function could take place on product markets – a liaison between the third party in switch trading and a commodity exchange. A clearing broker is employed by a company that has holds the right to trade directly on the various commodity exchanges on behalf of customers [Economics and Marketing: Choosing a Commodity Broker -  http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis1015].</ref> could be used as middlemen in such transactions.
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*  3) Russian Company С pays the export contract prepared by Company A delivering the tea processing and packaging equipment from United Kingdom and, as the compensating product, receives the Ceylon tea delivery from Company В (Sri Lanka). Settlements for such transactions are often effectuated using an intermediary playing a role of a transaction guarantor. Switch traders <ref> </ref> and clearing brokers As usual <ref>[http://www.investopedia.com/terms/c/clearingbroker.asp], the clearing broker is understood as a member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction. In the context of countertrading, the clearing broker (organization) plays almost the same roles. Especially, in case of switch transactions, the clearing broker could be an intermediary who converts a local (soft) currency using a currency exchange. The same function could take place on product markets – a liaison between the third party in switch trading and a commodity exchange. A clearing broker is employed by a company that has holds the right to trade directly on the various commodity exchanges on behalf of customers [Economics and Marketing: Choosing a Commodity Broker -  http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis1015].</ref> could be used as middlemen in such transactions.

Revision as of 00:57, 30 July 2014

Russian: Товарный свитч

The product switch arrangement is one of the product compensation transactions in the frame of the Countertrading. This transaction is related to but less sophisticated than the Clearing and, in the same time, more sophisticated than the simple Barter. The main item to be resolved in this type of countertrading is finding the compensating product that is at the disposal of the importer under the first barter contract (where the main subject for the importer could be equipment/technologies from developed countries) necessary/acceptable and simultaneously necessary/acceptable for the third party who has to pay an importer’s debt under the said first contract. The third party (that could be, in principle, one of manufacturing or service companies) playing a role of switch trader cold have the following interests to be involved into this switch transaction. The simplest option is to use the said compensating product in its own production process and/or consumption. Another option is reselling/speculation on one of product markets in expecting a good margin after subtracting all necessary transaction costs.

Product Switch (Simplified Flow Chart)[1]

PST E.jpeg

LEGEND:

In case of the product switch (participants: Company А = United Kingdom; Company В = Sri Lanka; Company С = Russia) the switch is developed as following:

  • 1) Company В has found a seller, Company A, of the tea processing and packaging equipment in United Kingdom, but the Company А, prepared an appropriate contract agrees to receive a payment in hard currency only (in UK pounds, preferably).
  • 2) Company В has found a buyer, Company С, for a compensating product (Ceylon tea) to pay the export contract prepared by Company A. In Russia, where after the USSR collapse (the main tea consumption in the USSR was provided by the Georgian tea) the tea became a rather high liquid product. Besides, due to exporting oil, gas, and weapons they buy hard currency in Russia without problems,
  • 3) Russian Company С pays the export contract prepared by Company A delivering the tea processing and packaging equipment from United Kingdom and, as the compensating product, receives the Ceylon tea delivery from Company В (Sri Lanka). Settlements for such transactions are often effectuated using an intermediary playing a role of a transaction guarantor. Switch traders [2] and clearing brokers As usual [3] could be used as middlemen in such transactions.


References

  1. Черенков В.И. Внешнеэкономическая деятельность предприятия: основные операции (серия «Высшее образование»). Ростов-на-Дону «ФЕНИКС», 2007 - с. 97-102. (с авторским изменением дизайна)
  2. [1], the clearing broker is understood as a member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction. In the context of countertrading, the clearing broker (organization) plays almost the same roles. Especially, in case of switch transactions, the clearing broker could be an intermediary who converts a local (soft) currency using a currency exchange. The same function could take place on product markets – a liaison between the third party in switch trading and a commodity exchange. A clearing broker is employed by a company that has holds the right to trade directly on the various commodity exchanges on behalf of customers [Economics and Marketing: Choosing a Commodity Broker - http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis1015].
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