N M I S M B A C a p i l M a rke ts- 2 0 0 8 -1 0 M ta 4. Parul Bhatnagar 6. Chetan Ganatra 7. Varun Goyal 14. Saurabh Kumar 22. Amish Pansuria 24. Shreedhar Rengarajan


International Capital market dealing in currencies outside the country of issue Undertaken by Banks London is the largest Euro Currency Market Need arose out of the desire to hide the identity of the asset holder

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Factors Contributing to the Growth

Regulation ‘M’ of the Federal Reserve Bank Regulation ‘Q’ of the Federal Reserve Act Tax Regulations by the US monetary authority

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Characteristics of Euro Currency Market

This market is made up of borrowing and lending of currencies outside the country of issue It is unregulated, uninsured and unsecured Small number of operators dealing in large volumes Highly competitive market Investors prefer short term deposits and borrowers want long term loans Loans are indexed against the LIBOR with a mark up for profit It is made up of four components: Euro Currency deposit market, Euro currency credit market, Euro currency bond market, Euro currency notes market.

London Interbank Reference Rate
The London Interbank Offered Rate is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market.
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LIBOR rates are provided for periods of up to 12 months. The most common rates are the daily, weekly, one month, six month, and one year. LIBOR rates are also provided in ten currencies, including the US dollar, Japanese yen, Euro, and Pound Sterling.

Calculation of LIBOR

Libor is an average of actual rates used by banks -

q The British Banker’s Association (BBA), surveys a variety of banks that reflect the general market. q The BBA then surveys the different banks’ interbank interest rate quotes. These  quotes are made available to the public. q The 2 highest and 2 lowest quotations are ignored and the average of the remaining 8 is  declared as the LIBID-LIBOR quotation for that day.  Average of these 2 rates is called LIMEAN.

These rates imply the market rates. All transactions in the euro currency market are indexed against these rates.

Loan Syndication
A syndicated loan is provided by a group of lenders and is structured, arranged, and administered by one or several commercial or investment banks known as arrangers.

Need for large amounts Time constraints Network building Can be cancelled any time Early repayment Single or staggered maturity Different tranches with different maturities

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Process of Loan Syndication
Lo a n U n d e rw ri n g ti B ank B ank B ank B ank LM d e ci e s d th e te rm s & co n d i o n s o f ti th e Lo a n

Pro j ct I p l m e n ta ti e m e o

I ve sto n r

Pa rti p a ti g B a n k ci n

Euro Bond Market

The Eurobond market is the market for long-term debt instruments issued and traded in the offshore market. A Eurobond is an international bond that is denominated in a currency not native to the country where it is

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Advantages of Eurobond Market
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Eurobond market often allows firms to issue bonds more quickly and with lower disclosure costs. For institutional investors, the Eurobond market offers a greater variety of high-quality issuers, ease of clearing and settlement, and larger issues with good liquidity. The retail investor often sacrifices yield, apparently in exchange for a bearer instrument with no withholding taxes and no disclosures made to the tax authorities. In particular, investors whose base currency is not the US$ may be more willing to sacrifice yield when they expect foreign exchange gains from a

Foreign Bonds

In International market bonds are classified as Foreign/Offshore. Foreign Bond is a debt instrument sold by a foreign entity in the local currency with the approval of local regulation authorities. Major Foreign bonds areYankee Bonds Bulldog Bonds Samurai Bonds

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Foreign Bonds

Yankee BondsThese are instruments sold by a foreign borrower in the U.S denominated in USD. If the bonds are sold through private placement only to specific institutional investors and the bonds are tradable only on OTC basis then they are called sec144A bonds. Bulldog Bonds – These are instruments sold by a foreign borrower in the U.K denominated in GBP.

Foreign Bonds

Samurai Bonds These instruments are sold by foreign borrowers in Japan, denominated in JPY with the approval of the Japanese regulatory authority. If the bonds are sold through private placement only to specific institutional investors and the bonds are tradable only on OTC basis then they are called Shibosai Bonds.

Offshore Bonds
q Offshore bonds are debt instruments sold by foreign borrowers in one or markets simultaneously, in a non resident currency. q q No approval required from local authorities. q q Such bonds are issued on bearer loans and are not subject to provisions of month holding tax. q q Example:- Air India selling bonds in UK, Germany, Switzerland and Sweden; denominated in USD.

Types of Offshore Bonds
q Straight Bonds:
q Bonds issued by borrowers with very good credit rating q Long maturities extending to 50 years q Carry fixed rate of interest, paid half yearly through life time q Principal redeemed in full at maturity.


q Sinking Fund Bonds:
q Such bonds are issued by borrowers with average credit rating. q Repayment of principle through annual installments during the life of the bond. q Thus the half yearly coupon carries both the interest portion and principal portion. q The intention is to assure investors regarding the solvency of the issuer.


Types of Offshore Bonds
q Junk Bonds:
q These bonds are issued by borrowers with very low credit rating. q Thus carry a very high rate of interest q Such instruments are purchased for short term investments q

q Bonds with Options
q Bonds with Call Options: Such bonds provide the issuer the right to repay the principal before actual maturity. q Bonds with Put Options: Such bonds provide the investor the right to get redemption of the principal before actual maturity. q

Types of Offshore Bonds
q Floating Rate Bonds:
q Bonds that provide a variable interest rate are floating rate bonds. q There are bonds that provide a ceiling rate of interest which indicate the maximum liability of interest payments for the issuer q There are bonds that provide a floor rate of interest which represents the minimum level of return that the investor gets. q

q Deep Discount Bonds:
q These are bonds that are issued for long maturities at a discount to face value and the redemption is done at the face value. q The difference represents the interest income to the

EURO Currency Notes Market
Definition :

Short term bonds sold by a borrower directly to the investors with or without the underwriting support of commercial banks

Types of Notes

Euro Commercial Papers (ECPs) Note Issuance Facilities (NIFs) Euro Medium Term Notes (EMTNs)

Implementation of Euro Currency concept in India

Benefits:Increases efficiency of the local forex market Provides an alternate source of finance to importers and exporters Provides Indian banks access to foreign currency resources at competitive rates Provides NRI’s with alternate investment avenues Provides the country with additional revenue and forex reserves Gives Indian banking exposure to complex and sophisticated international

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