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CCH (cch.taxgroup.com) reports:

A debt instrument providing an economic return by reference to the euro (and market interest rates in respect of the euro) was a euro-denominated indebtedness of the issuer despite being both issued and redeemed for U.S. dollars. The acquisition of --or becoming an obligor under --a debt instrument is a Code Sec. 988 transaction if the amount a taxpayer is either required to pay or entitled to receive is determined by reference to a nonfunctional currency. Neither the translation of dollars into euros and euros back into dollars, nor the fact that intervening currency fluctuations might result in the holder receiving less at maturity than was originally paid for the instrument, are relevant to the characterization of the instrument as debt. It is also irrelevant to its characterization whether the instrument is privately offered, publicly offered or traded via an exchange.
Rev. Rul. 2008-1, 2007FED ¶46,746
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Tax Research Consultant
CCH Reference - TRC INTLOUT: 21,104.05