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Introduction
 A financial market is the mechanism that facilitates
the transfer of funds from lenders (surplus units) to
borrowers (deficit units).
 The institutions & instruments are integral part of
financial market.
 When funds flow across national boundaries and the
transfer is between parties residing in different
countries, there comes into existence the
international financial markets.

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Motives for internationalization of
financial transactions
 Difference in interest rates
 International diversification
 Economic growth prospects
 Exchange rate fluctuations

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Sources of international funds
 Multilateral development banks or agencies
 Government/governmental agencies
 International banks
 Securities markets

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Segments of International Financial
Markets
 International Bond Market
 International Equity Market
 International Money Market
 International Credit Market
 Foreign Exchange Market

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Types
International bonds
 Foreign bonds & euro bonds
 Global bonds
 Straight bonds
 Floating rate notes
 Convertible bonds
 Cocktail bonds
 Callable and puttable bonds
 Sinking fund bonds

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Foreign bonds & euro bonds
 Foreign bonds are underwritten by the underwriters
of the country where they are issued
 Maturity based on the need of investors of a particular
country.
 Foreign bonds are subjected to government
regulations in the country where they are issued.

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DIFFERENCES
Foreign Bond
 If an Indian company issue
bond in the New-York and
bond is dominated in US
dollar, such Bonds are called
foreign bonds.
 Foreign bonds underwritten
by the underwriters of the
country where they issued.
Euro Bond
 But in case of euro bonds
they are dominated in
currency other than the
currency of the country
where the bonds are issued.
 Euro bonds underwritten by
the underwriters of multi
nationality
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DIFFERENCES
Foreign Bond Euro Bond
 Foreign bonds subjected to  Euro bonds are free from
governmental rules and rules and regulations.
regulations  Euro bond are tailored to the
 Foreign bonds is determined needs of the multinational
keeping in mind the investors investors.
of a particular country.

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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
 Euro

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Features
Eurobonds
 underwritten by an internationally.
 offered simultaneously to investors in a number of
countries .
 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 in
different countries

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Global bonds
 Bonds that can be offered within the euro market and
several other markets simultaneously.

 Unlike Euro bonds, global bonds can be issued in the

same currency as the country of issuance.

 For example, a global bond could be both issued in

the United States and denominated in U.S. dollars.

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Straight bonds
 Interest rate is fixed known as coupon rate
 It is a traditional type of bond
Its varities:-
 -Bullet-redemption bond
 -Rising-coupon bond
 -Zero-coupon bond
 -Currency options
 -Bull and bear bonds.
 -Debt warrant bonds

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Floating rate notes
 Does not carry fixed rate of interest
 Interest quoted as a premium or discount to a
reference rate(LIBOR)
 Interest rate revised periodically.
 Perpetual FRNs
 Minimax FRN
 Drop lock FRN
 Flip flop FRN
 Mismatch FRN
 Hybrid fixed rate reverse FRN
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Convertible bonds
 Convertible into equity shares
 Some convertible bonds have detachable warrants
involving acquisition rights
 Automatic convertibility into a specified number of
shares.

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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.

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ADR’S
 Represents ownership in the shares of a non-U.S.
company 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-based
companies.
 JPMorgan Citibank
 Deutsche Bank
 Bank of New York Mellon

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GDR’S
 Global Depository Receipt (GDR) - certificate
issued by international bank, which can be subject of
worldwide circulation on capital markets.
 GDR's are emitted by banks, which purchase shares of
foreign companies and deposit it on the accounts.
 Global Depository Receipt facilitates trade of shares,
especially those from emerging markets.
 Prices of GDR's are often close to values of related
shares.
 Very similar to GDR's are ADR's.
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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
to issue DR
 Proceeds flow from depository to custodian bank to
issuing company

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Documentation
 1. The prospectus
 2.The depository agreement
 3.The agreement between the custodian and
depository.
 4.The underwriting agreement
 5.A copy of the agreement with the listing stock
exchange.

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Types
International Money Market
Instruments
 Euro notes
 Euro commercial paper
 Medium term euro notes
 Certificate of Deposit
 Bankers’ acceptance (BA)

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Euro notes
 Like PNs for obtaining short term funds.
 Denominated in any currency other than the currency
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.

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Euro commercial notes
 A short-term, debt instrument
 Corporations issue euro commercial papers in order
to tap into the international money markets for their
financing.

 An example of a euro commercial paper is a British

firm issuing debt in U.S. dollars to encourage
investment from dollar-investors in international
money markets.

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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 foreign currency
without any need for redemption and fresh issue.
 It is not underwritten yet there is provision for
underwriting.
 It carry fixed interest rate

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Types
Medium Term Notes

 Euro Medium Term Notes (EMTNs)

 Global Medium Term Notes (GMTNs)

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