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International Financing

Apart from the sources discussed above, there are several other avenues for organizations to raise funds internationally. With the commencement of the global business organizations and the global activities of the business organizations, Indian companies have an access to funds in global capital market. International sources from where funds may be generated include:
  1. Commercial Banks: Globally, Commercial banks provide foreign currency loans for business purposes. They play a vital role in sourcing finance to non-trade international operations. The different types of loans and services provided by banks vary from country to country. For instance, Standard Chartered has now recognized as a major source of foreign currency loans to the Indian industry.
  2. International Agencies and Development Banks: Numerous international agencies and development banks have evolved over the years to finance international trade and business. These bodies offer medium and long term loans and grants to elevate the development of economically backward areas in the world. These bodies were initiated by the Governments of developed countries of the world at national, regional and international levels for financial endowment of various projects. The most prominent among them include International Finance Corporation (IFC), EXIM Bank and Asian Development Bank.
  3. International Capital Markets: Modern organisations as well as multinational companies depend upon sizeable borrowings in rupees and in foreign currency as well. Important financial instruments used for this purpose are:
    1. Global Depository Receipts (GDR's): The local currency shares of a company are given to the depository bank. The depository bank in turn, issues depository receipts against these shares. These depository receipts accounted in US dollars are known as Global Depository Receipts (GDR). GDR can be defined as a negotiable instrument that can be traded free like any other security. In the Indian context, a GDR serves as an instrument issued abroad by an Indian company to raise funds in any foreign currency and can be listed and traded on a foreign stock exchange. A holder of GDR can convert it into the number of shares it represents as and when it feels the need for it. The holders of GDRs do not possess any voting rights but only dividends and capital appreciation. Many Indian companies such as Infosys, Reliance, Wipro and ICICI have raised money through issue of GDRs (see Box F).
    2. American Depository Receipts (ADR's): American Depository Receipts can be defined as the depository receipts issued by a company in USA. It is bought and sold in American markets as regular stocks. It is similar to a GDR except for one limitation that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.
    3. Foreign Currency Convertible Bonds (FCCB's): Foreign currency convertible bonds are equity linked debt securities that has to be converted into equity or depository receipts within the stipulated time limits. 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. The FCCB's are issued in a foreign currency and carry a fixed interest rate which is lower than the rate of any other similar nonconvertible debt instrument. FCCB's are listed and traded in foreign stock exchanges. FCCB's are akin to the convertible debentures issued in India.

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