Invoicing Currency and Financial Hedging

Julien Martin, Victor Lyonnet and Isabelle Mejean

No 11700, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine the link between exporters’ currency choice decisions and the use of financial instruments to hedge exchange rate risks. On the empirical side, we find that large firms (either pricing in their own or in a foreign currency) are more likely to use hedging instruments, but the use of these instruments is more prevalent among firms pricing in a foreign currency. We then provide evidence that access to hedging instruments increases the probability of pricing in a foreign currency. A general framework of invoicing currency choice augmented with hedging can rationalize these facts. Consistent with our empirical findings and under plausible conditions, large firms that would have chosen to price in their own currency in the absence of hedging instruments set prices in a foreign currency if they have access to such instruments.

JEL-codes: F1 F3 F4 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Invoicing Currency and Financial Hedging (2022)
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