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Pricing of Exports and Exchange Rate Uncertainty

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  • Donnenfeld, Shabtai
  • Zilcha, Itzhak

Abstract

This paper examines the implications of different pricing-cum-invoicing strategies available to an exporting firm that sells its product in domestic and foreign markets when the exchange rate is uncertain. The firms' decisions are made sequentially. Throughout the decision-making process, the firm receives new information about the distribution of the random exchange rate. The information arrives after output decisions have been made, but before setting prices and allocating sales. The authors state conditions that lead to the dominance of invoicing exports in the importer's currency over the alternative invoicing strategies. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Donnenfeld, Shabtai & Zilcha, Itzhak, 1991. "Pricing of Exports and Exchange Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 1009-1022, November.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:4:p:1009-22
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    1. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
    2. Baron, David P, 1976. "Fluctuating Exchange Rates and the Pricing of Exports," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 425-438, September.
    3. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
    4. Grassman, Sven, 1976. "Currency distribution and forward cover in foreign trade : Sweden revisited, 1973," Journal of International Economics, Elsevier, vol. 6(2), pages 215-221, May.
    5. Baron, David P, 1976. "Flexible Exchange Rates, Forward Markets, and the Level of Trade," American Economic Review, American Economic Association, vol. 66(3), pages 253-266, June.
    6. McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, number 9780195024098.
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