Currency Quandary: The Choice of Invoicing Currency Under Exchange Rate Uncertainty

REVIEW OF INTERNATIONAL ECONOMICS

Posted: 10 Oct 1996

See all articles by Martin Johnson

Martin Johnson

Industry Commission

Daniel Pick

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Abstract

Recent studies have derived optimal invoicing strategies for an exporting firm when exchange rates are uncertain. However, these studies fail to explain trade transacted in a third currency (vehicle currency). In this study, we extend existing models to include the possibility that trade occurs in vehicle currency. We find that under conditions stipulated by existing models, vehicle currency invoicing is not preferred. The presence of a competing exporter under imperfect competition, however, can induce vehicle currency pricing. This is consistent with trade in many primary commodities dominated by few exporters with many importers but where commodities are not perfectly homogeneous.

JEL Classification: F31, F12

Suggested Citation

Johnson, Martin and Pick, Daniel, Currency Quandary: The Choice of Invoicing Currency Under Exchange Rate Uncertainty. REVIEW OF INTERNATIONAL ECONOMICS, Available at SSRN: https://ssrn.com/abstract=3525

Martin Johnson

Industry Commission ( email )

Melbourne
Australia

Daniel Pick (Contact Author)

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States
202-219-0353 (Phone)
202-501-8517 (Fax)

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