Pricing Of Exports And Exchange Rate Uncertainty
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.
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