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Transcript of Vineetha
INTERNATIONAL FINANCIAL
MARKET INSTRUMENTS &
INTERNATIONAL FINANCIAL INSTITUTIONS
Presented by:-
VINEETHA
1
International financial market
instruments
TYPES
International bonds Foreign bonds & Euro bonds
Global bonds
Straight bonds
Floating rate notes
Convertible bonds
Cocktail bonds
2
Types
Short & medium term instruments Euro notes
Euro commercial paper
Medium term euro notes
OTHERS
ADR
GDR
3
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.
4
DIFFERENCES
If an Indian companyissue bond in the New-York and bond isdominated in US dollar,such Bonds are calledforeign bonds.
Foreign bondsunderwritten by theunderwriters of thecountry where theyissued.
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
Foreign Bond Euro Bond
5
DIFFERENCES
Foreign bondssubjected togovernmental rulesand regulations
Foreign bonds isdetermined keeping inmind the investors of aparticular country.
Euro bonds are free
from rules and
regulations.
Euro bond are
tailored to the needs of
the multinational
investors.
Foreign Bond Euro Bond
6
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
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.
8
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
9
Straight bonds
Interest rate is fixed known as coupon rate
It is a traditional type of bond
Its verities:-
-Bullet-redemption bond
-Rising-coupon bond
-Zero-coupon bond
-Currency options
-Bull and bear bonds.
-Debt warrant bonds
10
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 FRN
11
Convertible bonds
Convertible into equity shares
Some convertible bonds have detachable warrants
involving acquisition rights
Automatic convertibility into a specified number of
shares.
12
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
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.
14
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.
15
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
16
ADR(American Depository Receipts)
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-basedcompanies.
JPMorgan Citibank
Deutsche Bank
Bank of New York Mellon
17
GDR’S
Global Depository Receipt (GDR) - certificate issuedby international bank, which can be subject ofworldwide circulation on capital markets.
GDR's are emitted by banks, which purchase shares offoreign 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 relatedshares.
Very similar to GDR's are ADR's.
18
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
19
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.
20
INTERNATIONAL FINANCIAL INSTITUTIONS:
International financial institutions (IFIs)
are financial institutions that have been established
by more than one country, and hence are subjects
of international laws. Their owners or shareholders
are generally national governments, although other
international institutions and other organizations
occasionally figure as shareholders. The most
prominent IFIs are creations of multiple nations,
although some bilateral financial institutions exist
and are technically IFIs. Many of these are
multilateral development banks (MDB).
WHAT ARE INTERNATIONAL FINANCIAL INSTITUTIONS (IFI’S)?
World Bank Group (WBG):
International Bank for Reconstruction and Development (IBRD)
International Development Association (IDA)
International Finance Corporation (IFC)
Multilateral Investment Guarantee Agency (MIGA)
International Centre for Settlement of Investment Disputes (ICSID)
International Monetary Fund (IMF)
Regional development banks, such as:
African Development Bank (AFDB)
Asian Development Bank (ADB)
CONTINUED…..
Inter-American Development Bank (IADB)
Bank of the South
European Bank for Reconstruction and Development (EBRD)
Other regional financial institutions e.g. European Investment Bank (EIB)
Export Credit Agencies of individual country governments, such as:
US Export Import Bank (EXIM)
Japan External Trade Organization
Hermes Kreditversicherungs (Germany)
INTERNATIONAL FINANCIAL INSTITUTIONS:
Their common goal…….
To reduce global poverty and improve people's living conditions
and standards;
To support sustainable economic, social and institutional
development; and
To promote regional cooperation and integration.
WORLD BANK GROUP:
The term "World Bank" generally refers tojust the IBRD and IDA
The World Bank's activities are focusedon developing countries, in fields such ashuman development, agriculture and ruraldevelopment, environmental protection,infrastructure, and governance.
It is concerned with assisting itsmember countries to achieve sustainedeconomic growth. It functions as anintermediary for the transfer offinancial resources from the moredeveloped to the less developedcountries.
World Bank
Formation- 27 December 1945
Type- International organization
Legal status- Treaty
Purpose/focus- Economic development, poverty elimination
Membership- 187 countries
President- Robert ZoellickJim Yong Kim (Elect)
Main organ- Board of Directors
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMET (IBRD):
1.The International Bank for
Reconstruction and Development was
established in 1945.
2. It had 184 members.
3. The IBRD is an international
organization whose original mission
was to finance the reconstruction of
nations devastated by World War II.
4. Now, its mission has expanded to fight
poverty by means of financing states.
5. Cumulative lending: $394 billion
6. Fiscal 2004 lending: $11 billion for 87
new operations in 33 countries
INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA):
1.The International Development
Association was established in
September 24, 1960.
2. 165 Members is the part of the
World Bank that helps the world’s
poorest countries.
3. IDA is responsible for providing
long-term, interest-free loans to the
world's 80 poorest countries, 39 of
which are in Africa.
4. Fiscal 2004 commitments: $9
billion for 158 new operations in 62
countries
MULTILATERAL INVESTMENT AND GUARENTEE AGENCY (MIGA):
1. The Multilateral Investment
Guarantee Agency was
established in 1988.
2. It had165 members.
3. Cumulative guarantees
issued: $13.5 billion
(Amounts include funds
leveraged through the
Cooperative Underwriting
Program).
4. Fiscal 2004 guarantees
issued: $1.1 billion
INTERNATIONAL FINANCE CORPORATION (IFC):
1. The International Finance Corporation
was established in 1956.
2. It had 176 members.
3. Committed portfolio: $23.5 billion
(includes $5.5 billion in syndicated
loans).
4. It promotes sustainable private sector
investment in developing countries as
a way to reduce poverty and improve
people's lives.
5. Fiscal 2004 commitments: $4.8 billion
for 217 projects in 65 countries.
INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES (ICSID):
1. The International Centre for
Settlement of Investment
Disputes was established in
1966.
2. It had 143 members.
3. Total cases registered: 159
4. It provides facilities for the
conciliation and arbitration of
investment disputes between
member countries and
individual investors.
5. Fiscal 2004 cases
registered: 30
INTERNATIONAL MONETARY FUND (IMF):
The International Monetary Fund was created in 1944, with a goal
to stabilize exchange rates and supervise the reconstruction of the
world’s international payment system.
1- Promote international monetary cooperation.
2-Shorten the duration and lessen the degree of disequilibrium in
the international balances of payments of members.
3-Facilitate the expansion and balanced growth of international
trade.
4-Promote Exchange stability and maintain orderly exchange
arrangements among members.
5-Assist in establishing a multilateral system of payments.