International Financial Instruments

International Financial Instruments

1. 5.International Financial Instruments Dr Raju Indukoori

2. Dr Raju Indukoori International Financial Instruments Classification Equity Instruments American Depository Receipts (ADRs) Global Depository Receipts (GDRs ) Debt Instruments Foreign Bonds External Bonds Euro Bonds European Bonds 2

3. Dr Raju Indukoori What is an ADR An American depositary receipt (ADR) is a negotiable certificate issued by an American bank representing specified number of shares of a foreign corporation traded in US Markets. 3

4. Dr Raju Indukoori More about ADR Similar to domestic corporations’ shares in terms of trading, dividend payment, etc.. Introduced by JP Morgan in 1927 for Selfridges, UK They equivalent to domestic GDRs and also known as American Depositary Shares (ADSs). 4

5. Dr Raju Indukoori Types of ADRs Unsponsored: Through OTC, No formal agreement with any depositary bank. Sponsored: Designated depositary / Transfer Agent. Level 1 : Through American OTC. Level 2 : Listed in US stock markets. Level 3 : Adhere to US GAAP and IFRS Restricted Programs Privately placed Offshore ADRs 5

6. Dr Raju Indukoori GDR Global Depositary Receipt (GDR) is negotiable certificate issued by a depositary bank, which represents the shares of foreign corporation. It is also known as International Depositary Receipt (IDR). 6

7. Dr Raju Indukoori More about GDR It is the global equivalent of an ADR. It may be converted into different number of shares. Priced in one of the freely convertible currency. It is listed and traded in European stock markets. 7

8. Dr Raju Indukoori Trading GDRs 1 GDR = 10 underlying shares or any other ratio. ADRs can become GDRs if they are sold to European Investors. Listed in usually in2 or more exchanges. Usually i Frankfurt Stock Exchange Luxembourg Stock Exchange London Stock Exchanges. Traded in International Order Book (IOB) 8

9. Dr Raju Indukoori 1.Foreign Bonds Bonds issued by a foreign Corporation or borrower in domestic currency for public investors in the country and listed in one the domestic stock exchanges. 9

10. Dr Raju Indukoori 1.Foreign Bonds Yankee Bonds : By non American in America. Bull Dog Bonds : Non British in UK. Samurai Bonds : Non Japanese in Japan. Shibosoi Bonds : Private placement by Non Japanese in Japan. 10

11. Dr Raju Indukoori 2.External Bonds Bonds: Foreign currency denominated domestic bonds issued by a domestic company. Foreign Currency Convertible Bonds (FCCB) : At the maturity time the bonds are partially or fully converted into shares according the agreed price or ratio. 11

12. Dr Raju Indukoori 3.Euro Bonds Bonds issued by an international company or syndicate in currency other than that of the country in which they are issued. They are categorized based on the currency in which they are denominated External bonds are foreign currency denominated domestic bonds issued by a foreign company. 12

13. Dr Raju Indukoori 3.Euro Bonds - Facts Originally created by Julius Strauss First in 1963 by Italian motorway network company Autostrade issued 60000 @ USD 250 in London and listed in Luxemborg Stock Exchange 13

14. Dr Raju Indukoori 4. European Bonds Bonds issued in Euros collectively by Euro nations and given to one of the individual governments It is tool to handle debt crisis Free rider and force rider problems are tackled in this process. 14