The Value of Invoice Currency Choice in a Volatile Exchange Rate Environment

17 Pages Posted: 17 Jul 2015

See all articles by Pekka Ahtiala

Pekka Ahtiala

Tampere University - Department of Economics

Yair Orgler

Tel Aviv University

Date Written: 1999

Abstract

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

Suggested Citation

Ahtiala, Pekka and Orgler, Yair, The Value of Invoice Currency Choice in a Volatile Exchange Rate Environment (1999). Multinational Finance Journal, Vol. 3, No. 1, p. 1-17, 1999. Available at SSRN: https://ssrn.com/abstract=2631478

Pekka Ahtiala (Contact Author)

Tampere University - Department of Economics ( email )

P.O. Box 607
Tampere, FIN-33101
Finland

Yair Orgler

Tel Aviv University ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel

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