Question

Under this type of countertrade, countries are likely to trade products up to a certain amount stated in a particular, mutually agreed-on hard currency and within a given time frame. When an imbalance occurs and one country owes money to the other, swing credits are paid in an agreed-on hard currency.

Answer 1

In the described countertrade arrangement, known as clearing agreement, countries trade within a limit set in hard currency, and imbalances are corrected using swing credits. This affects the current account balance, which includes trade in goods and services, as well as unilateral transfers, and is influenced by exchange rate fluctuations.

Step-by-step explanation:

The type of countertrade being described is known as clearing agreement or clearing arrangement, which is a mechanism used in international trade. It enables countries to trade up to a certain limit set in an agreed-upon hard currency and within a specified time frame. Any imbalance resulting in one country owing the other is reconciled through payments called swing credits, which are settled in the mutually agreed hard currency.

Countertrade arrangements help countries with trade balance issues and can impact the current account balance, which includes the trade in goods, services, and the flow of money from investments and unilateral transfers. Shifts in trade balances can occur due to various factors, including changes in exchange rates. An appreciation of a nation's currency could lead to increased imports, while depreciation can make a nation's exports more competitive, potentially transitioning from a trade deficit to a trade surplus.