Discuss the financial instruments used in international. financing

sourcesofb.f
cbse

#1

The financial instruments used in international financing are as follows :

  1. Commercial banks : Commercial banks all over the world extend foreign currency loans for business purposes. They are an important source of financing non-trade international operations. The type of loans and services provided by banks vary from country to country. For example, Standard Chartered emerged as a major source of foreign currency loans to the Indian industry.
  2. International agencies and development banks: A number of international agencies and development banks have emerged over the years to finance international trade and business. These bodies provide long and medium term loans and grants to promote the development of economically backward areas in the world. These bodies were set up by the governments of developing countries
    of the world at national, regional and international levels for funding various projects. The more notable amongst them include Inter-national finance Corporation (IFC), EXIM Bank and Asian Development Bank.
  3. International Capital Markets : Modem organisations including multinational companies depend upon sizeable borrowings in rupees as well as in foreign currency. Prominent financial instruments used for this purpose are :
    (i) 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).
    (ii) American Depository Receipts (ADR’s) : The depository receipts issued by a company in the US are known as American Depository Receipts.
    (iii) Foreign Currency Convertible Bonds (FCCB): 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.