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. 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 :
a. Foreign Exchange Markets (Spot Transactions / Forward Market / Derivatives)
b. Exchange rates (Direct quote method / Indirect Quote)
c. MNC Financial System
d. Risk Management
e. International Accounting System
What is International Finance?

4. SOURCES OF INTERNATIONAL
FINANCE
• External Commercial Borrowings (ECBs)
• Foreign Currency Convertible Bonds
(FCCBs)
• Depository Receipts (DRs)
a) American Depository Receipts (ADRs)
b) Global Depository Receipts (GDRs)
c) 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. 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 by 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. Issuing company (non-
US company) deposits
its securities with
domestic custodian
bank of its home nation.
Custodian bank informs
the overseas depository
that it has received
securities from the
issuing company.
Now overseas
depository issues the
ADR’s to American
investors.
The US investor makes
payment to foreign
depository.
Now foreign depository
remits the money to
custodian bank in the
nation of issuing
company.
Issuing company gets
payment from domestic
custodian bank.
Issuing Procedure

11. 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.

14. ADVANTAGES OF ADRS
A d v a n t a g e s t o I n v e s t o r s
 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

15. ADVANTAGES OF ADRS
A d v a n t a g e s t o I s s u i n g
C o m p a n y
 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

16. 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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18. THANK YOU