Scribd
Upload
15 views5 pages

New For Ifm

The document provides an overview of various financial instruments, including American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), which facilitate foreign companies' access to capital in U.S. and international markets. It also discusses different types of debt instruments such as foreign bonds, external bonds, Eurobonds, and the roles of multinational companies (MNCs) in global trade and investment strategies. Additionally, it covers Foreign Direct Investment (FDI) and the International Monetary System (IMS), highlighting their significance in international finance.

Uploaded by

swaraj koli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
15 views5 pages

New For Ifm

The document provides an overview of various financial instruments, including American Depository Receipts (ADRs) and Global Depository Receipts (GDRs), which facilitate foreign companies' access to capital in U.S. and international markets. It also discusses different types of debt instruments such as foreign bonds, external bonds, Eurobonds, and the roles of multinational companies (MNCs) in global trade and investment strategies. Additionally, it covers Foreign Direct Investment (FDI) and the International Monetary System (IMS), highlighting their significance in international finance.

Uploaded by

swaraj koli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

American Depository Receipt (ADR)

 Definition: A financial instrument issued by a U.S. bank that represents shares of a foreign
company, allowing it to trade in U.S. markets.
 Currency: Denominated in U.S. dollars ($).
 Stock Exchanges: Traded on NYSE, NASDAQ.
 Purpose: Helps foreign companies raise capital in the U.S. and attract American investors.
 Example: Alibaba (China) ADR on NYSE, BP (UK) ADR on NYSE.
Global Depository Receipt (GDR)
 Definition: A financial instrument issued by an international bank representing shares of a
company, allowing it to trade in multiple international markets. GDR is similar to ADR but can be
traded in multiple international markets
 Currency: Can be denominated in USD ($), Euros (€), or British Pounds (£).
 Stock Exchanges: Traded on London Stock Exchange, Luxembourg Stock Exchange, Frankfurt
Stock Exchange.
 Purpose: Helps companies raise capital from global investors beyond just the U.S. market.
 Example: Volkswagen (Germany) GDR on LSE, Samsung (South Korea) GDR on Luxembourg
Stock Exchange.
Debt Instruments (Bonds - Loans Taken by Companies & Governments)
1. Foreign Bond
 Meaning: A bond issued by a foreign company in the currency of the country where it is issued.
 Who issues it? A company from one country borrows money in another country using that
country's currency.
 Example

o Reliance Samurai Bond → Reliance Industries issued bonds in Japan, denominated in


Japanese Yen (¥). These are called Samurai Bonds.
o HDFC Yankee Bond → HDFC Bank issued bonds in the U.S. market, denominated in
U.S. dollars ($). These are called Yankee Bonds.

2. External Bonds

 Definition: Bonds issued in a foreign market by a borrower but denominated in a


currency that is foreign to the investor's country.
 Example: A UK company issuing bonds in India but denominated in U.S. dollars.

3. Eurobonds

 Definition: Bonds issued in a currency that is different from the home currency of the
country where it is issued.
 Issued in: Multiple international markets, making them more flexible.
 Example: A German company issuing bonds in Japan denominated in U.S. dollars
(Eurodollar Bonds).

4. European Bonds

 Definition: Bonds issued within the European market, often under the regulations of
the European Union.
 Issued in: The Eurozone and denominated mostly in Euros (€).
 Example: European Investment Bank (EIB) issuing bonds in Euros for infrastructure
projects

1. Multinational Companies (MNCs)


Definition:
Multinational Corporations (MNCs) are companies that have their headquarters in one country but
operate and have regional branches, production units, or distribution networks across multiple
countries.
Functions:
 Provide access to different products in different countries.
 Operate with production and distribution facilities in more than one country.
Examples:
 Microsoft (USA)
 Nestlé (Switzerland)
 IBM, Google, Dell, Oracle, HSBC, Nokia, Tata, Infosys, etc.
Merits of MNCs:
 Employment Generation – MNCs create job opportunities in the countries where they
operate.
 Flow of Foreign Capital – They bring in investment, boosting economic growth.
 Proper Use of Resources – MNCs optimize the use of natural and human resources.
 Technical Development – They introduce new technologies and expertise.
 End of Local Monopoly – Encourage competition, leading to better products and services.
 Improvement in Standard of Living – Higher wages, better job opportunities, and quality
products enhance lifestyles.
Demerits of MNCs:
 Danger for Domestic Resources – Overuse or depletion of local resources.
 Repatriation of Profits – Profits made in a host country are sent back to the home country.
 Threat to Independence – MNCs can influence political and economic decisions.
 Exploitation of People – Low wages, long working hours, and poor working conditions in
some countries.
 Competition with MSMEs – Small businesses face challenges due to MNCs’ large-scale
operations.
2. How Can Firms Expand Internationally?
Firms looking to enter international markets have several strategies, which include:
a) International Trade
 Exports: Selling products to foreign markets to penetrate international markets.
 Imports: Obtaining supplies or raw materials at a lower cost.
 Risk Level: Minimal risk as it doesn’t require heavy investment in foreign countries.
b) Licensing
 A company allows a foreign firm to produce and sell its products in exchange for royalties.
 Low investment, but less control over quality and brand reputation.
c) Franchising
 Similar to licensing but applies to service industries (e.g., McDonald's, KFC).
 Expands brand presence with limited investment.
d) Joint Ventures
 Partnership with a local firm in a foreign country.
 Shares risks and rewards but may lead to conflicts in management.
e) Acquisition of Existing Operations
 Buying an existing foreign company to gain immediate market access.
 Higher investment but offers better control.
f) Establishing New Subsidiaries
 Setting up wholly-owned production units or offices in foreign markets.
 Highest investment and risk but provide complete control

Foreign Direct Investment (FDI) - Detailed Explanation


Foreign Direct Investment (FDI) refers to an investment made by an individual, company, or
government from one country into a business or assets in another country, with the intention of
establishing long-term control or influence over the foreign business.
Key Features of FDI:
 Ownership & Control: The investor acquires significant ownership (usually 10% or
more) and managerial control over the foreign company.
 Long-term Investment: FDI is not just about financial investment but also involves
active participation in management, production, or operations.
 Physical Presence: It often involves establishing production units, offices, factories, or
acquiring existing businesses in the foreign country.
FDI can be done through two ways:
1. Automatic Route
o No prior approval from the government is required.

o Investors can directly invest in permitted sectors.

o Examples: IT, automobile, and manufacturing (up to certain limits).

2. Government Route
o Requires prior approval from the government or regulatory authorities.

o Investments in sensitive sectors need government scrutiny.

o Examples: Defense, telecom, and media sectors.

International Monetary System (IMS)


The International Monetary System (IMS) refers to the set of rules, institutions, and agreements
that govern international trade and financial transactions among countries. It provides a
framework for exchange rate management, international payments, and balance of payments
adjustments.
Key Functions of IMS:
1. Facilitates Global Trade – Ensures smooth currency exchange for international trade.
2. Stabilizes Exchange Rates – Provides rules for currency valuation (e.g., fixed, floating, or
pegged exchange rates).
3. Maintains Economic Stability – Helps prevent financial crises by managing global liquidity.
4. Regulates International Financial Flows – Manages capital movements between countries

Euro Markets refer to the international financial markets where securities (such as bonds, loans, and
equities) are issued and traded outside the jurisdiction of the currency in which they are denominated.
International Debt Instruments – Explanation
1. Euro Notes
o Short- to medium-term debt instruments issued in the international market.

o Typically have maturities ranging from a few months to five years.

o Issued in a currency different from the issuing country’s currency.

2. Euro Commercial Paper (ECP)


o Unsecured, short-term debt instrument issued in the international market.
o Maturity ranges from a few days to a year.

o Used by corporations and financial institutions for short-term funding needs.

3. Medium-Term Notes (MTNs)


o Debt securities with maturities ranging from one to ten years.

o Issued continuously in small amounts rather than in a single large issuance.

o Provides flexibility to issuers in terms of timing and amount.

4. Floating Rate Notes (FRNs)


o Bonds with variable interest rates that adjust periodically based on a benchmark rate (e.g.,
LIBOR, SOFR).
o Protects investors from interest rate risk.

o Typically issued by financial institutions and governments.

5. Euro Bonds
o Bonds issued in a currency different from the country where they are issued.

o Example: A U.S. company issuing bonds in euros in the London market.

o They are not necessarily linked to Europe; "Euro" refers to the market, not the currency.

6. Euro Equities
o Shares issued in international markets outside the issuer's home country.

o Allows companies to raise capital in foreign markets.

o Helps in diversifying investor base and increasing global reach.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy