Discuss the financial instruments used in international financing.
International financing mainly uses three types of financial instruments.
(a) Global Depository Receipts (GDRs): These are receipts issued by depository banks against the shares of a company - for instance, the shares issued by an Indian company abroad in order to raise foreign currency. Global Depository Receipts are usually denoted in US dollars and can easily be converted into shares at any time. They can be listed and traded on the stock exchange of any country other than the US.
(b) American Depository Receipts (ADRs): These are receipts of companies based in the US. They are usually traded like any other securities in the market. However, such trading is restricted to the US securities markets only. In addition, ADRs are sold only to US citizens.
(c) Foreign Currency Convertible Bonds (FCCBs): These bonds are debt securities that are convertible into equity shares or depository receipts after a specific period of time. The terms and prices of such conversions are generally specified in advance. The return on such securities is pre-fixed and lower than the return on non-convertible securities.