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All about Foreign Currency Convertible Bonds

August 14, 2009 09:01 IST
A newcomer to the business and finance sector can get numbed with the plethora of stocks, bonds, funds etc. along with its associated terms.

An average individual has to understand a mountain of information to make sound financial decisions.

In a bid to make things simpler, let's take a look at a bond which we most probably would run into while going through financial information - Foreign Currency Convertible Bond (FCCB).

What is a Foreign Currency Convertible Bond (FCCB)?

A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different than the issuer's domestic currency.

In other words, the money being raised by the issuing company is in the form of a foreign currency. It gives two options.
One is, to get the regular interest and principal and the other is to convert the bond in to equities. It is a hybrid between bond and stock.

How does it help companies?

Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies because:

How does it benefit an investor?

Are there any disadvantages to the investors and companies?

Yes, like any financial instrument, FCCBs also have disadvantages. Some of these are:

How is taxation done on FCCBs?

Taxation is computed in the following way:

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