1 Answer | Add Yours
Reciprocal buying is just two businesses entering into an agreement to buy each others' goods.
Think of a large company with lots of business lines, like Johnson and Johnson. They have hundreds of suppliers and customers. Let's say the have a shampoo manufacturer who owns the factory where they make J&J's shampoo. The owner of the factory sells the shampoo to J&J who sells it to a retailer. But the factory own also has to stock the first aid kits on his factory floor with bandages. J&J sells him the bandages. Codifying this in a contract would create a reciprocal buying arrangement. J&J buys x amount of shampoo in exchange for the factory owner buying x bandages for his first aid kits.
This is example is clearly contrived, but illustrates the points. A common, more abstract example would be banks executing credit swaps, agreeing to reciprocally buy fixed-rate credit for floating-rate credit. It's the same basic principle: an agreement for two counterparties to buy one anothers' goods.
We’ve answered 287,773 questions. We can answer yours, too.Ask a question