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Definition of Foreign Currency and Convertible Bonds

Foreign currency and convertible bonds are two different types of investments an investor or business can make. Each has its own value depending on the needs of the investor or business.

  1. Foreign Currency Defined

    • A foreign currency is any currency that is different from the home currency of the investor or business. For example, if a business keeps its books using the American dollar, then the euro would be a foreign currency.

    Convertible Bond Defined

    • A convertible bond is a debt instrument where one party owes another party both interest and the amount borrowed. The convertible portion of the bond gives the bond holder an option of changing the debt to an equity instrument. Therefore, the bond holder can change his debt to an ownership in the company that issued the bond.

    Uses

    • Foreign currency is a practical investment because foreign currency exchange rates will change. A favorable change in the exchange rate will lead to a gain for the investor or business.

      A convertible bond provides options and benefits for the bond holder. The bond holder will get a stream of cash from the interest payments, will receive the face value of the bond when it matures and added security from the chance to own a part of the company in exchange for giving up the debt.

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