International

Finance
Submitted by – Pallavi Thakur
Agenda
01 .
Why International Finance

02 Equity
Global Depository Receipt
American Depositary Receipt.

03 Debt External Commercial Borrowing.

Foreign Currency Convertible Bonds

04 Euro Money Market

.
 Why International Finance?
• International finance plays a critical role in international trade and inter-economy exchange of goods and
services. It is important for a number of reasons, the most notable ones are listed here −
• International finance is an important tool to find the exchange rates, compare inflation rates, get an idea
about investing in international debt securities, ascertain the economic status of other countries and
judge the foreign markets.
• Exchange rates are very important in international finance, as they let us determine the relative values of
currencies
GLOBAL DEPOSITORY RECEIPT

A global depositary receipt (GDR) is a certificate issued by

a bank that represents shares in a foreign stock on two or
more global markets.

GDRs typically trade on American stock

exchanges as well as Eurozone or Asian
exchanges.

GDRs and their dividends are priced in the

local currency of the exchanges where the
shares are traded.
GLOBAL DEPOSITORY RECEIPT
 A depositary receipt, which was originally a physical
certificate, allows investors to hold shares in the equity of
other countries. A global depositary receipt (GDR) is one
that is issued by a foreign company on more than one
international market, for instance in the U.K. and the
Eurozone.

One example of a GDR is the American oil

& pas company Phillips 66 (NYSE: PSX). In
addition to its domestically traded shares, it
also has depositary receipts listed on
exchanges in Brazil (P1SX34), France
(R66), Vienna (PSXC), and London
(0KHZ.L), among others.
 American Depositary Receipt (ADR)
An American depositary receipt is a certificate issued by a U.S. bank that represents shares in
foreign stock.
 These certificates trade on American stock exchanges.
 ADRs and their dividends are priced in U.S. dollars.
 ADRs represent an easy, liquid way for U.S. investors to own foreign stocks.
 These investments may open investors up to double taxation and there are a limited number
of options available.
 Types of American Depositary Receipts
UNSPONSERED.
SPONSERED
A bank also issues an unsponsored ADR.
A bank issues a sponsored ADR on behalf
However, this certificate has no direct
of the foreign company. The bank and the
involvement, participation, or even
business enter into a legal arrangement.
permission from the foreign company.
The foreign company usually pays the
Theoretically, there could be several
costs of issuing an ADR and retains control
unsponsored ADRs for the same foreign
over it, while the bank handles the
company, issued by different U.S. banks.
transactions with investors. Sponsored
These different offerings may also offer
ADRs are categorized by what degree the
varying dividends. With sponsored
foreign company complies with Securities
programs, there is only one ADR, issued
and Exchange Commission (SEC)
by the bank working with the foreign
regulations and American accounting
company.
procedures.
External commercial borrowing (ECBs) are loans in India made by
non-resident lenders in foreign currency to Indian borrowers. They
are used widely in India to facilitate access to foreign money by
External
Indian corporations and PSUs (public sector undertakings).
commercial
ECBs include commercial bank loans, buyers' credit, suppliers'
credit, securitised instruments such as floating rate notes and fixed
rate bonds etc., credit from official export credit agencies and
borrowing
commercial borrowings from the private sector window of
multilateral financial Institutions such as 
International Finance Corporation (Washington), ADB, AFIC, CDC,
(ECBs)
etc. ECBs cannot be used for investment in stock market or
speculation in real estate. The DEA (Department of Economic
Affairs), Ministry of Finance, Government of India along with 
Reserve Bank of India, monitors and regulates ECB guidelines and
policies.

Borrowers can use 25 per cent of the ECB to repay rupee

debt and the remaining 75 per cent should be used for new
projects. A borrower can not refinance its entire existing
rupee loan through ECB. The money raised through ECB is
cheaper given near-zero interest rates in the US and
Europe, Indian companies can repay part of their existing
expensive loans from that.
Foreign Currency Convertible Bond (FCCB)
A foreign currency convertible bond (FCCB)
is a type of bond that is issued in a currency
other than the issuer's home currency.
Convertible bonds fall in the middle of debt
and equity financial instruments, both acting
as a bond but allowing investors to convert
the bond into stock.
These kinds of bonds are often listed by
large, multinational companies with
offices around the world, seeking to raise
money in foreign currencies.
These bonds assume great importance for 
multinational corporations and in the current
business scenario of globalisation, where
companies are constantly dealing in foreign
currencies.
 Euro money market
This is the money market for borrowing
and lending currencies held as deposits
in banks outside the country where they
are legal tender. It is often used by
institutions who wish to circumvent
domestic regulations on certain
The Euro-dollar market has the following
transactions.
characteristics:
It has emerged as a truly international
short-term money market.
Transactions in the euro money market It is unofficial but profound.
occur mainly through the electronic mode. It is free.
The secured market segment experiences It is competitive.
that largest electronic mode of transaction.
It is a more flexible capital market.

The Euro-dollar market has two facts:

(i) It is a market which accepts dollar deposits from the
non-banking public and gives credit in dollars to the
needy non-banking public.
(ii) It is an inter-bank market in which the commercial
banks can adjust their foreign currency position
through inter-bank lending and borrowing.
Advantages of Euro Market
 
1. Useful for foreign trade
The Eurodollar is considered one of the reasons behind the growth in the international short-term capital market. Also, it is
useful for financing foreign trade by enabling traders to import and export through cheaper methods.
 
2. Greater flexibility
The Eurodollar allows for greater flexibility to adjust cash/liquidity positions for financial institutions.
 
3. Funding for arbitrage
The Eurodollar helps enhance the extent of funds available for arbitrage.
 
Disadvantages of Euro Market
 
1. Weakened financial discipline
Naturally, due to the fact that it is unregulated by the home country of the currency, it weakens the banking community’s
discipline and reduces the value of the domestic currency. It also speaks to the spending behaviors of citizens, which may
now include an increased amount of foreign expenditure due to the ease and convenience of the eurodollar market.
 
2. Risk of excess credit
Tension can arise from the overextension of the dollar credit by domestic banks and the potential to generate sudden
large-scale credit withdrawals in a country.
 
3. Exchange rate destabilization
The market can cause destabilization by applying pressure to foreign exchange rates and foreign exchange reserves.
 
THANK YOU