What is a 'Quid Pro Quo'

Quid pro quo, Latin for "something for something," is used to describe when two parties engage in a mutual agreement to exchange goods or services. In a quid pro quo agreement one transfer is contingent upon a reciprocal transfer. As a term, quid pro quo is used similarly in business and legal contexts to convey that a good or service has been exchanged for something of equal value.

Breaking Down 'Quid Pro Quo'

Key to a quid pro quo business agreement is consideration, which may take the form of a good, service, money or financial instrument. Such consideration equates to a contract in which something is being provided and something of equal value will be returned in exchange. Without such consideration a court may find a contract to be invalid or nonbinding. Any individual, business or other entity should know what is expected of both parties to enter into a contract.

A bartering arrangement between two parties is an example of a quid pro quo business agreement. In other contexts, a quid pro quo may entail more of a questionably ethical "favor for a favor" arrangement rather than a balanced exchange of equally valued goods or services.

Quid Pro Quo Examples

Quid pro quo arrangements can have negative connotations in certain contexts. For example, in a quid pro quo agreement between an investment bank's research arm and a public company, the bank might amend their rating of the company's shares in exchange for underwriting business. In response to these potential conflicts of interest, U.S. financial regulators have investigated and issued rules in order to ensure that firms put customers' interests before their own in issuing stock ratings.

Another example of quid pro quo agreement in business is a soft dollar agreement. In a soft dollar agreement, one firm (Firm A) uses another firm's (Firm B) research. In exchange, Firm B executes all of Firm A's trades. This exchange of services is used as payment in lieu of a traditional, hard dollar payment. Research has shown that transactions executed under soft dollar arrangements cost more than execution-only arrangements. Still, soft dollar arrangements such as these are legal in the U.S. and other places, though discouraged in some jurisdictions.

Quid Pro Quo in Politics

Quid pro quo arrangements may also exist in the political realm. In exchange for donations a politician may be obliged to provide a future consideration regarding policymaking or decisionmaking. Such a quid pro quo does not imply a bribe, however, merely the understanding that the politician will consider the donor's wishes when creating policy or voting on legislation.

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