An equity derivative that constitutes a longer-maturity foreign currency option designed to mirror changes in the value of a given currency relative to another. Essentially, it is a covered warrant issued on a currency pair in order to allow investors to take a position on single exchange rates. In this sense, the holder (the warrant owner) can exchange one currency for another at a preset price (i.e., a fixed exchange price). In most cases, currency warrants are attached to debt issues so that bondholders are protected against a depreciation of the currency denominating the bond’s cash flows.

This instrument can be exchange-traded like common stocks, and may be exercised and cash-settled in the base currency on any day prior to maturity date. Currency warrants are sometimes issued by major corporations and are actively traded on exchanges.

Currency warrants can be classified as currency call warrants and currency put warrants.