Currency Certificate

DEFINITION of 'Currency Certificate'

A note that grants the holder the right to convert a specific amount of one currency to another at a given exchange rate until it expires. A currency certificate is a bearer certificate in that there is no registered owner. Currency certificates are a useful tool for hedging foreign exchange risk.

BREAKING DOWN 'Currency Certificate'

For example, suppose that Company XYZ is based in America but also has operations in Canada. The company will be receiving Canadian dollars from sales, but will want them to be exchanged for U.S. dollars. If the U.S. dollar weakens relative to the Canadian dollar, the company will lose money.

Each month, Company XYZ forecasts the next month's Canadian sales. The company could purchase one-month currency certificates for the amount of next month's estimated Canadian sales at a foreign exchange rate specified today. This will protect the company if the Canadian dollar appreciates relative to the U.S. dollar, because it can turn in these certificates and convert the currency at the note's specified rate. If the U.S. dollar appreciates relative to the Canadian dollar, the certificates will not be used.

RELATED TERMS
  1. Push Out

    One of two ways to effect a stock split. In a push out, new share ...
  2. Share Certificate

    A share certificate is a written document signed on behalf of ...
  3. Trust Certificate

    A bond or debt investment, usually in a public corporation, that ...
  4. Periodic Payment Plan Certificate

    A certificate representing ownership interest in a periodic payment ...
  5. One-Day Certificate

    A type of temporary financing used by the U.S. Treasury. One-day ...
  6. Mutual Investment Certificate

    A certificate issued by a local or municipal authority for the ...
Related Articles
  1. Professionals

    Introduction

    FINRA/NASAA Series 66 - Regulation of Securities. This section gives all the definitions of security under the Uniform Securities Act (USA).
  2. Forex Fundamentals

    How To Calculate An Exchange Rate

    An exchange rate is how much it costs to exchange one currency for another.
  3. Forex Education

    What is an Indirect Quote?

    An indirect quote expresses the amount of foreign currency required to buy or sell one unit of the domestic currency in the foreign exchange markets.
  4. Forex Strategies

    The Money Market Hedge: How It Works

    Investopedia explains how to hedge foreign exchange risk using the money market, the financial market in which highly liquid and short-term instruments like Treasury bills, bankers’ acceptances ...
  5. Retirement

    Index-Linked Certificates Of Deposit: Upside Potential, Low Risk

    Index-linked CDs generate returns similar to indexes, without the potential for loss.
  6. Investing Basics

    Explaining Fixed Exchange Rates

    A government using a fixed exchange rate has linked the value of its currency to the value of another country’s currency, or the price of gold.
  7. Forex

    How Currency Forward Contracts Work

    A currency forward contract locks the exchange rate for a currency’s purchase or sale at a future date.
  8. Forex Strategies

    Minimize Exchange Rate Risk With Currency ETFs

    Since foreign exchange rates can impact portfolio returns, investors should hedge this risk whenever possible. Currency ETFs are ideal for such a purpose.
  9. Professionals

    FOREIGN CURRENCY OPTIONS

    The value of one country’s currency relative to another’s is constantly changing and is known as the exchange rate. Large commercial banks exchange currencies for their own accounts ...
  10. Professionals

    The Uniform Securities Act (USA) - Definitions Part 5

    FINRA/NASAA Series 63 - The Uniform Securities Act(USA) - Definitions Part 5. In this section detailed definitions of issuer, nonissuer transaction, offer to purchase, security and person.
RELATED FAQS
  1. How do you get a hard copy of a stock certificate?

    Before online brokers and personally-directed accounts, holding a physical stock certificate was a necessity, as this was ... Read Answer >>
  2. I hold stock certificates in a company that just had a stock split. What happens ...

    The short answer is that a stock split will have little effect on the holder of stock certificates. In most cases when an ... Read Answer >>
  3. I lost my share certificate. Do I still own the stock?

    Regardless of whether a shareholder loses his or her stock certificate, that person still owns the shares. However, in order ... Read Answer >>
  4. Should I convert my telecom paper stocks to electronic records?

    Convert your paper shares of a telecommunications company's stock to electronic form in just a few simple steps, and make ... Read Answer >>
  5. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ... Read Answer >>
  6. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center