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. Trading

    Spice Up Your Portfolio With International Bonds

    Going global can add flavor and diversity to an otherwise bland basket of bonds.
  10. Markets

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
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 planning ... 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. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center