Synthetic Barter: Simulating Countertrade Solutions with Swaps

John F. Marshall and Kevin J. Wynne

This paper provides a relatively simple and straightforward procedure by which financial swaps and related derivatives can be used to create synthetic barter. Synthetic barter offers several advantages over actual barter: it solves the inherent difficulty of finding suitable counterparties by making such counterparties unnecessary; it ensures the quality of the goods imported and exported because the physical transactions continue to be made in the cash markets with vendors of the barter synthesizer's own choosing and where, therefore, quality is enforced by competitive pressures; and it allows the barter exchange rate to be fixed for whatever period is desired by the barter synthesizer without regard to the requirements of a barter counterparty.