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Invoicing Currency and Financial Hedging

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  • Martin, Julien
  • Lyonnet, Victor
  • Mejean, Isabelle

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.

Suggested Citation

  • Martin, Julien & Lyonnet, Victor & Mejean, Isabelle, 2016. "Invoicing Currency and Financial Hedging," CEPR Discussion Papers 11700, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11700
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    Cited by:

    1. Lee, Kwan Yong & Naknoi, Kanda, 2024. "Exchange rates, invoicing currencies and the margins of exports," Journal of International Money and Finance, Elsevier, vol. 141(C).
    2. Varela, Liliana & Alfaro, Laura & Calani, Mauricio, 2021. "Granular Corporate Hedging Under Dominant Currency," CEPR Discussion Papers 16232, C.E.P.R. Discussion Papers.
    3. Marco Garofalo & Giovanni Rosso & Roger Vicquéry, 2024. "Dominant Currency Pricing Transition," Economics Series Working Papers 1044, University of Oxford, Department of Economics.
    4. A. Berthou & G. Horny & J-S. Mésonnier, 2018. "Dollar Funding and Firm-Level Exports," Working papers 666, Banque de France.
    5. Héricourt, Jérôme & Nedoncelle, Clément, 2018. "Multi-destination firms and the impact of exchange-rate risk on trade," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1178-1193.
    6. Berthou, Antoine & Horny, Guillaume & Mésonnier, Jean-Stéphane, 2022. "The real effects of invoicing exports in dollars," Journal of International Economics, Elsevier, vol. 135(C).
    7. Héricourt, Jérôme & Nedoncelle, Clément, 2018. "Multi-destination firms and the impact of exchange-rate risk on trade," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1178-1193.
    8. Benguria, Felipe & Wagner, Rodrigo, 2024. "Trade invoicing currencies and exchange rate pass-through: The introduction of the euro as a natural experiment," Journal of International Economics, Elsevier, vol. 150(C).

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    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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