Dollar Invoicing Can Create Exposure Without a U.S. Counterparty

What it is

International trade can be priced or invoiced in a third currency rather than the currency of either trading partner. When a contract is dollar-denominated, the parties can acquire dollar cash-flow and exchange-rate exposure through the invoice structure itself.

Why it matters

Trade geography alone can understate dollar sensitivity. Firms may need to obtain, hedge or pass through dollars because of contract denomination rather than direct U.S. sales or purchases.

Example

A non-U.S. importer buying from a non-U.S. exporter can still face a dollar-linked invoice and therefore care about the exchange rate between its local currency and USD.

Common mistake

Assuming dollar exposure exists only when one side of a trade transaction is located in the United States.

What to watch

• invoice currency
• settlement currency
• local-currency revenues
• hedging policy
• exchange-rate pass-through

Key takeaway

Map the contract currency as well as the trading partners when identifying dollar exposure.

Related cards