Invoicing

abhishreshthaa

New member
 Invoicing


A firm may be able to shift the entire risk to another party by invoicing its exports in its home currency and insisting that its imports too be invoiced in its home currency, but in the presence of well functioning forwards markets this will not yield any added benefit compared to a forward hedge. At times, it may diminish the firm’s competitive advantage if it refuses to invoice its cross-border sales in the buyer’s currency.


In the following cases invoicing is used as a means of hedging:


1. Trade between developed countries in manufactured products is generally invoiced in the exporter’s currency.


2. Trade in primary products and capital assets are generally invoiced in a major vehicle currency such as the US dollar.


3. Trade between a developed and a less developed country tends to be invoiced in the developed country’s currency.


4. If a country has a higher and more volatile inflation rate than its trading partners, there is a tendency not to use that country’s currency in trade invoicing.


Another hedging tool in this context is the use of “currency cocktails” for invoicing. Thus for instance, British importer of fertilizer from Germany can negotiate with the supplier that the invoice is partly in DEM & partly in Sterling.


This way both the parties share exposure. Another possibility is to use one of the “standard currency baskets” such as the SDR or the ECU for invoicing trade transactions.


Basket invoicing offers the advantage of diversification and can reduce the variance of home currency value of the payable or receivable as long as there is no perfect correlation between the constituent currencies.


The risk is reduced but not eliminated. Also, there is no way by which the exposure can be hedged since there is no forward markets I these composite currencies. As a result, this technique has not become very popular.
 

rosemarry2

MP Guru
 Invoicing


A firm may be able to shift the entire risk to another party by invoicing its exports in its home currency and insisting that its imports too be invoiced in its home currency, but in the presence of well functioning forwards markets this will not yield any added benefit compared to a forward hedge. At times, it may diminish the firm’s competitive advantage if it refuses to invoice its cross-border sales in the buyer’s currency.


In the following cases invoicing is used as a means of hedging:


1. Trade between developed countries in manufactured products is generally invoiced in the exporter’s currency.


2. Trade in primary products and capital assets are generally invoiced in a major vehicle currency such as the US dollar.


3. Trade between a developed and a less developed country tends to be invoiced in the developed country’s currency.


4. If a country has a higher and more volatile inflation rate than its trading partners, there is a tendency not to use that country’s currency in trade invoicing.


Another hedging tool in this context is the use of “currency cocktails” for invoicing. Thus for instance, British importer of fertilizer from Germany can negotiate with the supplier that the invoice is partly in DEM & partly in Sterling.


This way both the parties share exposure. Another possibility is to use one of the “standard currency baskets” such as the SDR or the ECU for invoicing trade transactions.


Basket invoicing offers the advantage of diversification and can reduce the variance of home currency value of the payable or receivable as long as there is no perfect correlation between the constituent currencies.


The risk is reduced but not eliminated. Also, there is no way by which the exposure can be hedged since there is no forward markets I these composite currencies. As a result, this technique has not become very popular.

Hello abhi,

Please check attachment for Euro as Invoicing Currency in International Trade, so please download and check it.
 

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