Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
The authors investigate the choice of currency of invoicing in international trade under exchange rate fluctuations. Predictions derived from a model developed by Donnenfeld and Zilcha in 1991, and others, regarding the optimal choice of currency of invoice are tested for imports into Canada. The authors employ a unique dataset from Customs Canada that covers a six‐year period and lists all currencies used for invoicing by industry. The empirical results support the hypothesis that there is a positive relationship between the extent of invoicing in the importer's national currency and exchange rate risk, and a negative relationship between invoicing in the exporter's currency as well as invoicing in a third currency and exchange rate risk. The empirical results further indicate that relative size of a country plays a role in determining the currency of invoicing.