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Finance Dictionary and Glossary of Investment Terms
A type of loan undertaken by a company that desperately needs cash. It works like this: an investor lends the company money in exchange for convertible debt, which, like a convertible bond, typically has provisions that allow the investor to convert the bond into stock at below-market prices. These investors can then short the company's stock and try to drive its price down. The lower the stock goes, the more shares the investor will get when he or she converts. The investor then closes out his or her short position with the shares received from the conversion.