What is GDR?

Global Depository Receipt means any instrument in the form of a depository receipt or certificate created by the overseas depository bank outside India and issued to non- resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company. Among the Indian Companies, Reliance Industries Ltd. Was the first company to raise funds through a GDR issue.

Following are the simple steps of issuing GDRs : 1st Step : To find the Depository bank

Depository bank has only right to issue the GDRs. So, it is necessary to find depository bank in USA and other European countries.

2nd Step: Issue the Shares to Depository bank Shares can not issued to foreign investors. But shares are issued to depository bank and depository bank will accept the shares of Indian companies as the custodian of foreign investors.

3rd Step: Deposit the fees For issuing GDRs, either investors or Company has to deposit the fees for issuing the certificate named global depository receipt.

4th Step: Issue of GDRs and Record Depository bank has right to issue one GDR certificate for 2 to 10 shares. The issue of GDRs to those investors who will pay the amount of shares of Indian companies. After this, it will be assumed that USA or other foreign countries' investors have acquired the shares of Indian companies. Indian company gets money of shares through depository banks. On the other side, foreign investors' name registered and they will get dividend through this bank in USA Dollar. Not only Indian companies but many other developing countries' companies are using same procedure for getting fund through GDRs. This year, a Kuwaiti investment company successfully issued shares in the form of Global Depository Receipts (GDRs) to foreign investors. After issuing GDRs, these shares can deal in any foreign stock exchange and GDRs will be one of the security type in stock exchange list of stocks.

What is American Depositary Receipt

An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number of shares of a foreign corporation traded on a U.S. stock exchange. An ADR will be used by a foreign corporation that wishes to have a portion of its equity traded in the U.S. market, but doesn't want to actually list its company's shares on a U.S. exchange.

There are four main parties that come into play with ADRs:

1. The issuing corporation is the first party. This is typically a large foreign-based corporation that is already listed on a major foreign exchange. Rather than dual list its shares on its home exchange and on a U.S. exchange, the issuer sells a bulk amount of its shares to a trusted U.S. party - a recognized bank.

2. A U.S. bank is the second party in this process; by accepting the issuing company's shares and selling representative certificates to investors, the bank is said to sponsor the security, making it accessible to investors in the ADR's local market. Essentially, the bank accepts the shares from the foreign corporation, stores all of them in its vault, and prints a bunch of certificates that represent the shares. Those certificates are then issued to investors via an exchange.

3. A major U.S. exchange (i.e. NYSE or Nasdaq) then lists the bank's certificates for trading, allowing investors to buy and sell ADR units just as they would normal shares. (For further reading, see Getting To Know Stock Exchanges.) Investors set market prices for the ADRs through the bidding process, pricing and freely trading the units back and forth in U.S. dollars. Because they are ADRs, investors avoid the problem of converting into foreign currency each time the units are bought and sold. They also don't have to deal with foreign trading rules or laws; however, the appropriate Securities and Exchange Commission (SEC) rules do apply.

4. The SEC is the fourth major party involved in ADRs. While it plays no direct role in the issuance and trading of the ADR units, the SEC requires ADR issuers to file certain documents with the SEC before allowing the proposed ADR units to be issued and traded in the U.S. markets.

Definition of 'Currency Swap' A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on a company's balance sheet.

Meaning : Currency swaps are agreements between two individuals or entities to exchange
specified types and amounts of currencies. Along with the initial exchange of a specific amount of one currency for a specific amount of a different currency, the process of a currency swap normally also includes a series of recurring payments based on the cash flow performance of the two currencies. This makes a currency swap somewhat different from a

currency exchange, in that the exchange normally involves simply exchanging currency at the most recent rate of exchange.

For example, suppose a U.S.-based company needs to acquire Swiss francs and a Swissbased company needs to acquire U.S. dollars. These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange

Definition of 'Interest Rate Swap' An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

meaning 'Interest Rate Swap'

Interest rate swaps are simply the exchange of one set of cash flows (based on interest rate specifications) for another. Because they trade OTC, they are really just contracts set up between two or more parties, and thus can be customized in any number of ways. Generally speaking, swaps are sought by firms that desire a type of interest rate structure that another firm can provide less expensively. For example, let's say Cory's Tequila Company (CTC) is seeking to loan funds at a fixed interest rate, but Tom's Sports Inc. (TSI) has access to marginally cheaper fixed-rate funds. Tom's Sports can issue debt to investors at its low fixed rate and then trade the fixed-rate cash flow obligations to CTC for floating-rate obligations issued by TSI. Even though TSI may have a higher floating rate than CTC, by swapping the interest structures they are best able to obtain, their combined costs are decreased - a benefit that can be shared by both parties.