Finance: What is a Dual Currency Bond?

What is a Dual Currency Bond? Multinational corporations often find their books filled with foreign currencies from countries where they have businesses and have established their brand. One way in which they utilize some of these currencies is to enact securities underwriting that allows them to circulate interest payments in a different currency than repayment of principal. These hybrid securities are called Dual Currency Bonds. Due to the added foreign exchange risk to prospective bondholders, interest rates are usually higher than comparable single currency bonds from the same issuer.

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Transcript

00:24

bond is a bond where the principal and the interest

00:27

payments are made in different currencies like here's a bond

00:30

whose principal is paid off in u s dollars But

00:33

its interest is paid in euros and yeah whatever currency

00:38

being used for interest payments is called the base currency

00:42

Well why would you the investor of want one of

00:44

these things Well dual currency bonds or subject to exchange

00:48

rate risk In other words you're making a gamble not

00:51

just on an investment but on which way the exchange

00:55

rate will bounce That is if you own something it's

00:58

highly exposed two euros while then you're kind of making

01:01

a bet that the relative to the dollar the euro

01:03

zehr gonna appreciate mohr like the government's printing less of

01:07

them You have less inflation whatever because then if that

01:10

repayment currency appreciates well boom you're more in the money

01:14

Than just the interest you collected And if that currency

01:17

doesn't appreciate well there's always bank robbery is a last 00:01:21.189 --> [endTime] resort dual currency dueling currencies No