“Optimum Invoicing in Foreign Trade” by Udo BROLL
Dresden University of Technology
University of Dortmund
In view of uncertainties over the future development of exchange rates, internationally active firms are not indifferent with regard to the selection of currency for setting their prices, as the currency used for invoicing can significantly influence their economic situation. We find that the exporter’s (importer’s) currency is preferred when the profit function is convex (concave) with respect to the foreign exchange rate. In particular, exporting firm's price in the importer's currency if foreign demand is sufficiently price elastic.