What are some of the disadvantages of long-term supply contracts?
What will be an ideal response?
Answer: Such contracts have several potential disadvantages. First, they expose each party to the risk that the other party may default and fail to live up to the terms of the contract. Thus, while they insulate the firms from commodity price risk, they expose them to credit risk. Second, such contracts cannot be entered into anonymously; the buyer and seller know each other's identity. This lack of anonymity may have strategic disadvantages. Finally, the market value of the contract at any point in time may not be easy to determine, making it difficult to track gains and losses, and it may be difficult or even impossible to cancel the contract if necessary.
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a. True b. False Indicate whether the statement is true or false
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How might the Indonesian government use a counterpurchase to its advantage?