Dual Currency Issue

DEFINITION of 'Dual Currency Issue'

A bond that pays interest in one currency but pays the principal in a different currency. The amount of the principal repayment is set at initiation and paid at maturity. This principal amount usually allows for some appreciation in the exchange rate of the stronger currency. These issues are common in the Eurobond market and are a useful source of capital for multinational companies.




BREAKING DOWN 'Dual Currency Issue'

There are three methods used in applying the exchange rate to principal and interest payments from dual currency bonds:

1. The use of the prevailing exchange rate when the bond is issued

2. The use of the existing exchange rate (spot rate) at the time cash flow payments are made

3. The use of the currency that is chosen from the two currencies by the investors or issuers of these bonds - also known as an "option currency bond"

RELATED TERMS
  1. Dual Currency Bond

    A debt instrument in which the coupon and principal payments ...
  2. Dual Currency Swap

    A currency swap used to hedge the risk associated with the issuance ...
  3. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  5. Currency Swap

    A swap that involves the exchange of principal and interest in ...
  6. Sinking Fund

    A means of repaying funds that were borrowed through a bond issue. ...
Related Articles
  1. Markets

    What Does Principal Mean?

    For banks, principal refers to the amount due on a loan, and is used to calculate interest payments.
  2. Managing Wealth

    How Exchange Risk Affects Foreign Bonds

    Investors include foreign bonds in their portfolios to take advantage of higher interest rates or yields, and to diversify their holdings. However, the higher return expected from investing in ...
  3. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  4. Managing Wealth

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  5. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  6. ETFs & Mutual Funds

    Bonds

    What bonds are: Debt securities where you lend money to an issuer (e.g., a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  7. Markets

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  8. Financial Advisor

    Rising Rates: What It'll Mean for Stocks and Bonds

    A look at what rising interest rates could mean for the equity and bond markets.
  9. ETFs & Mutual Funds

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  10. Managing Wealth

    When Your Bond Comes Calling

    Callable bonds can leave investors with a pile of cash in a low-interest market. Find out what you can do about it.
RELATED FAQS
  1. In the context of a bond, what does the principal refer to?

    Get introduced to the world of bond investing and learn what the term "principal" means in reference to a corporate or government ... Read Answer >>
  2. What are the responsibilities of the principal in a company?

    Learn to differentiate between some of the many definitions and responsibilities of a "principal" as it relates to business ... Read Answer >>
  3. Why does the majority of my mortgage payment start out as interest and gradually ...

    When you make a mortgage payment, the amount paid is a combination of an interest charge and principal repayment. Over the ... Read Answer >>
  4. Is there any limit on how much I can pay toward my mortgage principal every month?

    I understand that I'll be paying more interest and less principal for almost the first half of my mortgage term. I'm ... Read Answer >>
  5. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  6. How do companies benefit from interest rate and currency swaps?

    An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center