A certificate of deposit (CD) that is issued or denominated in a foreign currency or a basket of foreign currencies (a currency/ currencies other than the reporting currency of an issuing bank or financial institution). As the name implies, and for an issuer based in the United States for example, foreign currency certificates can be issued in euros, British pounds and other foreign currencies. In this case, the certificate can be purchased with dollars and at maturity the foreign currency can be converted back to dollars. The interest is quoted in a foreign currency or more, and hence the certificate will not provide a fixed interest return (APY) due to potential changes in exchange rates that will affect interest rate. These changes in addition to economic conditions in the countries whose currencies denominate such certificate would be a serious source of risk to the investor (i.e., the holder).
Due to their very nature, i.e., being denominated in a foreign currency, these certificates may not be insured by relevant authorities in the issuing bank’s country.
Comments