Counter trading is a hedging technique that involves trading goods or services to offset exposures.

• A. They involve currency options
• B. They involve netting
• C. They involve trading goods or services to offset exposures
• D. They involve using forward contracts

Answer: (C)

Counter trading hedges by exchanging real goods or services instead of using money or financial instruments. The idea is to balance out the exposure by agreeing to a return trade of equal value, so the net cash flow or currency risk is reduced without relying on a cash payment at a future date. This approach is common in international trade when currencies are volatile or access to foreign currency is limited, since the offset comes from an actual barter rather than a monetary hedge. For example, a company might supply machinery in exchange for raw materials from a partner, with both sides ensuring the values are aligned, thereby mitigating exposure to price or currency movements.

Currency options and forward contracts, on the other hand, use financial instruments to manage currency risk, not the exchange of real goods. Netting is about simplifying settlements among related parties by offsetting receivables and payables, rather than creating an offset through physical goods exchange.