Valuing the flexibility of currency choice in multinational trade with stochastic exchange rates

Trade credits with an implicit “multi-currency” option embedded are analyzed. The option gives the holder the right to choose whichever currency, from a pre specified set of currencies, to use when he pays for merchandises bought on credit. The price is specified in several currencies at the time the merchandise is bought. The customer will use the most favorable currency, relative to his home currency, to pay for the merchandise at the time the payment is due. We calculate the market value of this flexibility.