A bond that is issued in one currency giving the holder the option, often at discretion, to receive repayment of principal and/or payment of interest in another currency or set of currencies. That means the coupon of a currency convertible is paid in currency other than the issue currency if the bondholder would choose to convert. In specific features, currency convertibles are similar to a conventional bond issued in conjunction with a forward contract. The conversion “exchange” rate is determined at the time of issue, whether as a fixed-rate option or a floating-rate option. With a fixed-rate option, the exchange rate is the rate prevailing in the market at the time the conversion option is exercised. In convertibles with a fixed rate option, the foreign exchange risk is borne entirely by the issuer.

A currency convertible could also be a bond that offers its holder the right to convert into common stock at exchange rates prevailing at the time of the bond offering.