Foreign Capital

FOREIGN CAPITAL

The capital city of a country other than your own.

Money invested from another country.

SOURCE

Equity

FDI

International Depository Receipt

ADR/GDR

Debt

Foreign currency

Loan

ECB/FCCB

FDI

Foreign direct investment is a direct investment into a production or business in a country by an individual company or company of another country, either by buying a company shares ,by buying a company or by expanding operations in an existing business in that country.

METHODS OF FDIForeign direct investor may acquire voting power of an enterprise in an economy through any of the following methods.

By incorporating a wholly owned company anywhere. By acquiring shares of an associated companyParticipating in equity joint venture.

DEPOSITORY RECEIPT

o A depository receipt is a type of negotiable (transferable) financial security that is a traded on a local stock exchange but represents a security ,usually in the form of equity. The DR , which is a physical certificate allows investors to hold equity of other countries. One of the common DR is the ADR American depositary receipt. It has spread on other part of the globe as a global depositary receipt.

No prior approval of SEBI, RBI or government is required for issue of DRs

Depositary Receipts can trade on all U.S. stock exchanges as well as on many European stock exchanges

TYPES OF DEPOSITORY RECEIPTS

ADRs – Traded in US markets

GDR s – Typically traded in one or more markets

EDR s – Traded in Euro markets

BENEFITBenefits to a Company:

Expanded market share through broadened and more diversified investor exposure with potentially greater liquidity, which may increase or stabilize the share price.

Enhanced visibility and image for the company's products, services and financial instruments in a marketplace outside its home country.

Flexible mechanism for raising capital

A vehicle or currency for mergers and acquisitions.

Benefits to an Investor:

Diversification of portfolio

Familiar trade, and settlement procedures.

Information easily available

 

RISK INVOLVED

Inflation Risks of the countries

Exchange Rate risks

Political risks

Finally Performance of the company

AMERICAN DEPOSITARY RECEIPTS

Certificates issued by a U.S. depositary bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue.

ADVANTAGES

oFlexibility to list on national exchange in the US

o Ability to raise capital

o Diversify portfolio

o Save money by reducing administration costs

o Trade is clear and settle in US Dollar

DISADVANTAGES

Only small selection of ADRs available for trading

Long time to receive information

Currency exchange risk

Political and economical risks

GDR

A bank certificate issued in more than one country for shares in a foreign company

The shares are held by a foreign branch of an international bank

ADVANTAGES

GDR allow the investors to hold share in foreign companies without bothering about their accounting practice, laws or any other rules

It facilitates easy trading method since in the global market you can buy shares or sell it using dollars and the stock market offerings are listed out in English

you can buy them even you are restricted by any investment objective which prevents you from buying stocks of foreign companies.

FOREIGN CURRENCY LOANS

Foreign currency loans are given by the domestic banks to Corporate.

These loans are given from the deposits of the Foreign currency accounts Non Resident Indians.

 

FCL-ADVANTAGES

These funds are primarily available to Export oriented unit( project

financing) Importing companies( payments) Public sector units ( For purchase of

capital goods  Relatively cheaper Funds

Lesser Processing time 

EXTERNAL COMMERCIAL BORROWINGS ECBS

These includes buyers credits, bank loans, securities issued, credits from official credit agencies.

These funds are made available by foreign banks, Financial institutions abroad like IMF, World Bank etc.

SPECIFICATIONS:

Usage Specifications:

Raised only for Investment.

Permitted for overseas acquisitions( Subsidiaries)

Restrictions:

Investment in Capital Markets

Investment in Real Estate sector

Domestic Companies Takeover

FOREIGN CURRENCY CONVERTIBLE BOND (FCCB)

A convertible bond issued in a currency different than the issuer’s domestic currency

It is a hybrid between bond and stock.

HOW DOES IT HELP?

It may appear to be more stable than their domestic currency

Gives issuers the ability to access investment capital available in foreign markets

It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component

HOW DOES IT BENEFIT AN INVESTOR?

Safety of guaranteed payments on the bond

Redeemable at maturity if not converted

Easily marketable as investors enjoys option of conversion in to equity

BIBLIOGRAPHY

http://business.mapsofindia.com/fipb/forms-foreign-capital-flowing.html

http://www.ibef.org/india/economy/fdi.aspx http://internationalinvest.about.com/od/inves

tinginadrs/a/whatisadr.htm http://blog.nobletrading.com/2009/03/adr-typ

es-and-advantages.html http://www.articlesbase.com/small-business-

articles/advantages-and-disadvantages-of-global-depositary-receipt-4512703.html

http://thismatter.com/money/stocks/global-depositary-receipts.htm

  http://www.bankbazaar.com/guide/all-about-f

ccb-foreign-currency-convertible-bond/3767/

THANK YOU

BY ROHINI CHOUDHURY ANJALI MOURIYA