The basic exposure
If a euro-based investor buys a US dollar Eurobond, both the coupons and the final repayment arrive in dollars. If the dollar weakens against the euro, the investor receives fewer euros, even if the issuer pays every cent on time. Currency moves can easily be larger than a year's coupon.
Hedging
Institutional investors frequently hedge with currency forwards or cross-currency swaps. The cost or benefit of hedging depends roughly on the difference between short-term interest rates in the two currencies, so a high-yielding dollar bond may offer a much lower yield once hedged into euros or yen.
Issuer currency mismatch
Currency risk also affects the issuer. A company that earns local currency but borrows in dollars may struggle to pay if its home currency falls sharply. Analysts therefore look closely at how much of an issuer's revenue is in hard currency and whether its debt is hedged.
Local-currency Eurobonds
Some issuers sell Eurobonds denominated in emerging-market currencies but settled internationally. These give investors local-currency exposure without opening accounts in the local market, but carry the full currency risk.