Chapter 5

Diminishing national boundaries

Efficiently produce products in foreign 

markets 
Broaden markets and diversify
Earn higher returns
 Online transaction
 New technology
 Awareness about services offered in other

countries
 Financial deregulation can be referred to the
reduction or elimination of government power
in a particular industry, usually enacted to
create more competition within the industry.
So deregulation is very important as:
 It helps in creation and expansion of world

wide banking structure.

 by increasing competition, it increases

efficiency of business also.

As according to the UN report a
sustained process of deregulation within
countries and between countries can
lead to global crisis.
Suggestions :
Those financial instrument which do not
contribute to long term economic growth
should be removed, and speculative
and risky activities should be
encouraged.
 Mergers

It refers to legal consolidation of two

companies into one entity .
 Acquisition

It occurs when one company takes over

another and completely established
itself as the new owner.
Euro market
 It is a kind of market which is virtually

free from regulations ,which

provides excellent opportunities for
investment ,funding and speculation.
Also provide risk management
products.
 The last two decades have seen the
emergence of a large number of
multinational companies from
emerging economies .
 About 22 MNCs from top 100
infrastructure MNCs are headquartered
in developing economies .
 Example :TATA
 Through integration ,domestic investors can
buy foreign asset and foreign investors can
buy domestic asset .
 So this gives the investors the freedom and

opportunity to raise funds and to invest

anywhere in the world, through any type of
instrument.
 Integration has lead to redistribution of

financial resource from the surplus to

deficit countries.
 As the name suggest, ECB- when company
borrows money from external [non-
trading/foreign] sources.
 Money is borrowed from non- resident

lenders via bank loans, fixed rate bonds,

non- convertible shares, optionally
convertible or partially convertible
preference shares etc.
 For a minimum average of 3 years.
 Within Outside
India India
1. Short term funds – 1. ADR (American
money market Depository Receipts)

1. Long term funds – 2. GDR (global depository

capital market receipt)

3. ECB (External
Commercial Borrowing )

4. FCCB (foreign currency

convertible bond)
 Hotel , infrastructure, IT , hospital
sector.
 Micro finance institutions [MFI] can

borrow via ECB.

 NGOs, NBFCs (insurance companies),

Companies can borrow via ECB, if

they are involved in micro- finance
activity.
 From American’s point of view, it allows a
foreign Co. [e.g. Indian] to raise money from
American financial market.
 Suppose, Indian Co. wants to raise money

from America, by issuing shares in American

Stock Exchange.
 But then Indian Co. will have to maintain

accounts according to American standards.

 To prevent this problem, Indian Co. gives its
shares to American bank.
 American bank gives that Indian Co. receipts

[called ADR] in return of these shares. Then

Indian Co. can trade those ADR receipts in
American share market, to raise money.
 But then Indian Co. will have to pay

dividends to those investors in dollar

currency.
 From India’s point of view, it allows a
foreign company [e.g. America,
British] to raise money from Indian
financial market.
 GDR enable a company, the issuer, to access
investors in capital markets outside of its home
country.
 It is listed & traded in the stock exchange.
 If for example an Indian company which has

issued ADRs in the American market wishes to

further extend it to other developed and
advanced countries such as Europe, then they
can sell these ADRs to the public of Europe & the
same would be named as GDR.