International Capital Markets

International Capital Markets

International Capital Markets:

An international capital market is a financial system by which governments, companies and individuals borrow and invest money trans-nationally. Modern organizations including multinational companies depend upon sizable borrowings in rupees as well as in foreign currency. It is comparable to a capital market, which enables government entities, companies and individuals to borrow and invest domestically.

Prominent financial instruments used for this purpose are:

Global Depository Receipts (GDR’s): The local currency shares of a company are delivered to the depository bank. The depository bank issues depository receipts against these shares. Such depository receipts denominated in US dollars are known as Global Depository Receipts (GDR). GDR is a negotiable instrument and can be traded freely like any other security.

American Depository Receipts (ADR’s): The depository receipts issued by a company in the USA are known as American Depository Receipts. ADRs are bought and sold in American markets like regular stocks. It is similar to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.

(c) Foreign Currency Convertible Bonds (FCCB’s): Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. Thus, a holder of FCCB has the option of either converting them into equity shares at a predetermined price or exchange rate, or retaining the bonds. The FCCB’s are issued in a foreign currency and carry a fixed interest rate which is lower than the rate of any other similar nonconvertible debt instrument.