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.

Investopedia explains '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.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center