International financial-market-instruments


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International financial-market-instruments

  2. 2. TypesInternational bonds Foreign bonds & euro bonds Global bonds Straight bonds Floating rate notes Convertible bonds Cocktail bonds2
  3. 3. TypesShort & medium term instruments Euro notes Euro commercial paper Medium term euro notes OTHERS ADR GDR3
  4. 4. Foreign bonds & euro bonds Foreign bonds are underwritten by the underwritersof the country where they are issued Maturity based on the need of investors of aparticular country. Foreign bonds are subjected to governmentregulations in the country where they are issued.4
  5. 5. DIFFERENCES If an Indian companyissue bond in the New-York and bond isdominated in USdollar, such Bonds arecalled foreign bonds. Foreign bondsunderwritten by theunderwriters of thecountry where theyissued. But in case of eurobonds they aredominated in currencyother than the currencyof the country where thebonds are issued. Euro bondsunderwritten by theunderwriters of multinationalityForeign Bond Euro Bond5
  6. 6. DIFFERENCES Foreign bondssubjected togovernmental rulesand regulations Foreign bonds isdetermined keeping inmind the investors of aparticular country. Euro bonds are freefrom rules andregulations. Euro bond aretailored to the needs ofthe multinationalinvestors.Foreign Bond Euro Bond6
  7. 7. Global bonds First it issued in 1989 by world bank It also issued by the company It dominated in 7 country’s currency Australian dollar Canadian dollar Japanese yen Swidish crona Euro7
  8. 8. Global bonds Bonds that can be offered within the euro marketand several other markets simultaneously. Unlike Euro bonds, global bonds can be issued inthe same currency as the country of issuance. For example, a global bond could be both issued inthe United States and denominated in U.S. dollars.8
  9. 9. FeaturesEurobonds underwritten by an internationally. offered simultaneously to investors in a number ofcountries . issued outside the jurisdiction of any single country. they are not registered through a regulatory agency. Make coupon payments annually. Large in size offered for simultaneous placement indifferent countries9
  10. 10. Straight bonds Interest rate is fixed known as coupon rate It is a traditional type of bondIts varities:- -Bullet-redemption bond -Rising-coupon bond -Zero-coupon bond -Currency options -Bull and bear bonds. -Debt warrant bonds10
  11. 11. Floating rate notes Does not carry fixed rate of interest Interest quoted as a premium or discount to a referencerate(LIBOR) Interest rate revised periodically. Perpetual FRNs Minimax FRN Drop lock FRN Flip flop FRN Mismatch FRN Hybrid fixed rate reverse FRN11
  12. 12. Convertible bonds Convertible into equity shares Some convertible bonds have detachable warrantsinvolving acquisition rights Automatic convertibility into a specified number ofshares.12
  13. 13. Cocktail bonds Denominated in a mixture of currencies. Represent a weighted average of 5 currencies Investors get currency diversification risk Depreciation offset by appreciation of other.13
  14. 14. Euro notes Like PNs for obtaining short term funds. Denominated in any currency other than thecurrency of the country where they are issued. Documentation facilities are minimum. Represent Low cost funding route. Investor too prefer them in view of short maturity.14
  15. 15. Euro commercial notes A short-term, debt instrument Corporations issue euro commercial papers inorder to tap into the international money marketsfor their financing. An example of a euro commercial paper is a Britishfirm issuing debt in U.S. dollars to encourageinvestment from dollar-investors in internationalmoney markets.15
  16. 16. Medium term euro notes Longer maturity between 1 year to 5 years. Short term euro notes are allowed to roll over. Issued to get medium term funds in foreigncurrency without any need for redemption andfresh issue. It is not underwritten yet there is provision forunderwriting. It carry fixed interest rate16
  17. 17. ADR’S Represents ownership in the shares of a that trades in U.S. financial markets ADRs carry prices in US dollars, pay dividends in US dollars, And can be traded like the shares of US-basedcompanies. JPMorgan Citibank Deutsche Bank Bank of New York Mellon17
  18. 18. GDR’S Global Depository Receipt (GDR) - certificate issuedby international bank, which can be subject ofworldwide circulation on capital markets. GDRs are emitted by banks, which purchase shares offoreign companies and deposit it on the accounts. Global Depository Receipt facilitates trade ofshares, especially those from emerging markets. Prices of GDRs are often close to values of relatedshares. Very similar to GDRs are ADRs.18
  19. 19. Procedure of issue Deciding the size of the issue , the market of the issue, price of the issue and the formalities involved. Approaching a lead manager Fulfilling the formalities and preparing the prospectus. Depositing shares to be issued with the custodian Custodian asks depository located in foreign country toissue DR Proceeds flow from depository to custodian bank toissuing company19
  20. 20. Documentation 1. The prospectus 2.The depository agreement 3. The agreement between the custodian anddepository. 4.The underwriting agreement 5. A copy of the agreement with the listing stockexchange.20
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