Sources of International Finance.pptx

The process of globalization has brought about numerous changes in the world economic and financial front.
Globalization has increased the capital mobility among countries which has led to development and sophistication of international financial markets.
What is International Finance?It is basically the study of monetary interactions that transpire between two or more countries. International finance focuses on areas such as FDI and currency exchange rates. Increased globalization has increased the importance of international finance.
With increasing volumes and complexities of international business, the study of international finance has become a specialized subject dealing with the study of :
Foreign Exchange Markets (Spot Transactions / Forward Market / Derivatives)
Exchange rates (Direct quote method / Indirect Quote)
MNC Financial System
Risk Management
International Accounting System
Sources of international finance
External Commercial Borrowings (ECBs)
Foreign Currency Convertible Bonds (FCCBs)
Depository Receipts (DRs)
American Depository Receipts (ADRs)
Global Depository Receipts (GDRs)
Indian Depository Receipts (IDRs)

1. B.COM II (3 rd Semester) Subject : issues in Indian Commerce Topic : Sources of International Finance Presented By: Mamta Bhola (Assistant professor , PG Department of Commerce and Management, Arya College, Ludhiana)

2. introduction The process of globalization has brought about numerous changes in the world economic and financial front. Globalization has increased the capital mobility among countries which has led to development and sophistication of international financial markets. Globalization Financial Markets Led to change in

3. It is basically the study of monetary interactions that transpire between two or more countries. International finance focuses on areas such as FDI and currency exchange rates. Increased globalization has increased the importance of international finance. With increasing volumes and complexities of international business, the study of international finance has become a specialized subject dealing with the study of : Foreign Exchange Markets (Spot Transactions / Forward Market / Derivatives) Exchange rates (Direct quote method / Indirect Quote) MNC Financial System Risk Management International Accounting System What is International Finance?

4. Sources of international finance External Commercial Borrowings (ECBs) Foreign Currency Convertible Bonds (FCCBs) Depository Receipts (DRs) American Depository Receipts (ADRs) Global Depository Receipts (GDRs) Indian Depository Receipts (IDRs)

5. External Commercial Borrowings ( ECb ) These refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, scrutinized instruments that are availed from non-resident lenders with minimum average maturity of 3 years .

6. External Commercial Borrowings ( ECb ) Reasons for the increasing importance of ECBs: Low interest rates in the global market Rapid trade growth Greater access to markets Risky and uncertain nature of IPOs Investor profile has gone through massive change

7. Foreign Currency Convertible Bonds (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.

8. Foreign Currency Convertible Bonds (FCCB) Conditions for Issuance: Having the maturity period of not less than 5 years. The call and put option, if any shall not be exercisable prior to 5 years. Issuance of FCCBs only without any warrants attached. Issue expenses shall not exceed 4% of issue size and 2% in case of private placement.

9. 2 + American Depository Receipts (ADR’s) Meaning: ADR’s allow American investors to invest in non-US companies and give non-US companies easier access to the US capital markets. ADR’s are traded like stocks but represent shares of a foreign company trading on a foreign stock exchange. ADR’s were first issued b y J.P. Morgan in 1927. ADR’s are regulated by Securities Exchange Commission (SEC) of USA. ADR’s are negotiable instruments indirectly representing ownership of shares.

10. 2 + Issuing Procedure

11. 2 + Payment of dividend The dividend on shares is held by the domestic custodian bank, which is paid by the issuing company in its domestic currency to the domestic custodian bank. The dividend is remitted to the foreign investors through the foreign depository by converting it into US dollars at prevailing exchange rates. All the risk of currency rate fluctuations is borne by the foreign investors.

12. Types of ADR s a)Unsponsored ADR s b)Sponsored ADR s i ) Sponsored Level I ADR s ii) Sponsored Level II ADR s III) Sponsored Level III ADR s

13. 2 + Advantages of ADR s Advantages to Investors Easy to purchase and hold Global diversification Liquidity Receipt of dividend in investors’ home currency Regulated by Securities and Exchange Commission (SEC) Safe custody Benefits of currency fluctuations

14. 2 + Advantages of ADR s Advantages to Issuing Company Convenient mode of raising capital No fixed burden of return on ADRs Good global image Broadens investor base Foreign collaborations Facilitates global mergers and acquisitions

15. 2 + global Depository Receipts ( gDR’s ) Meaning: A Global Depository Receipt is a bank certificate that is basically issued in more than one country for shares in a foreign company. These shares are held by a foreign branch of an international bank. These shares trade like domestic shares, but these are offered for sale globally through various branches of the banks. In India, GDRs are a popular financial instrument used by listed companies, as also in many other economies, mainly to raise funds denominated generally in the US dollar or the Euros. Since, GDRs are typically bank certificates held by a foreign branch of an international bank, they are tradable and transferable. While the shares trade on a domestic stock exchange, they can also be offered for sale globally through the enlisted branches of the bank.

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17. 2 + 2 + THANK YOU