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On the design of invoicing practices in international trade

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  • Jean-Marie Viaene
  • Casper Vries

Abstract

We advance an explanation for the choice of the invoice currency of international trade contracts on the basis of strategic bargaining considerations. The choice of the invoice currency originates in a situation in which each trader takes into account the other party's bargaining power. The latter depends on the individual discount factor, whether one is the first or second proposer, and whether one is on the short or long side of the market. Along these lines we explain the Grassman bias for trade contracts to be invoiced in the exporter's currency. Copyright Kluwer Academic Publishers 1992

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File URL: http://hdl.handle.net/10.1007/BF01886200
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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 3 (1992)
Issue (Month): 2 (June)
Pages: 133-142

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Handle: RePEc:kap:openec:v:3:y:1992:i:2:p:133-142

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: invoicing; sequential bargaining; Grassman's law;

References

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  1. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  3. Grassman, Sven, 1973. "A fundamental symmetry in international payment patterns," Journal of International Economics, Elsevier, vol. 3(2), pages 105-116, May.
  4. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  5. Black, Stanley W., 1985. "International money and international monetary arrangements," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 22, pages 1153-1193 Elsevier.
  6. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
  7. Giorgio Basevi & Daniela Cocchi & Pier Luigi Lischi, 1985. "The Choice of Currency in the Foreign Trade of Italy," Working Papers 17, Dipartimento Scienze Economiche, Universita' di Bologna.
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