Volume 3, Number 1 / March , Pages 1-70
The Value of Invoice Currency Choice in a Volatile Exchange Rate Environment
Multinational Finance Journal, 1999, vol. 3, no. 1, pp. 1-17
Pekka Ahtiala , University of Tampere, Finland    Corresponding Author
Yair E. Orgler , Tel Aviv University, Israel

The paper explores the conditions whereby an exporter can gain a competitive advantage by offering a buyer a contract with a choice of invoice currencies rather than a single currency, and determines the value of such a choice. The model incorporates accounts-payable management with exchange- risk management, taking into account the forward exchange rate and the seller's assumptions about the buyer's initial foreign exchange position, its expectations about the future spot rate, and its risk premium. It demonstrates how the value of a choice depends on these variables, as well as on the market interest rates in the two currencies, and on the implicit conversion factor that the seller uses in pricing in different currencies.

Keywords : invoice currency choice; payment terms in foreign trade
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