Principal Exchange-Rate-Linked Security

Principal Exchange Rate Linked Security

A debt security denominated in U.S. dollars. The principal to be repaid on the security is determined by a particular exchange rate that exists between the dollar and a given currency at a certain time. For example, a company wishing to expand its overseas operations may buy this security in order to finance the expansion in the foreign currency while still linking it to the U.S. dollar. Companies use principal exchange-rate-linked securities to hedge against foreign exchange risk.

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principal exchange-rate-linked security (PERLS)

Dollar-denominated debt in which the amount of principal that is to be repaid is determined by the exchange rate that exists between a specified foreign currency and the U.S. dollar at the time the security reaches maturity.