Foreign capital issuance is the process by which a foreign entity raises capital through the issuances of securities in a foreign market. This can be done through a variety of securities, including stocks, bonds and other financial instruments. Indian companies are permitted to raise foreign currency resources through two main sources : (a) Issue of foreign currency convertible bonds more commonly known as 'Euro' issues; and (b) Issue of ordinary shares through depositories receipts namely Global Depository Receipts (GDRs), American Depository Receipts (ADRs), to foreign investors i.e. to the institutional investors or individual investors. In the context of this para, what are foreign currency convertible bonds, Global Depository Receipts (GDRs) and American Depository Receipts ?
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding rag
Model Answer
Foreign Currency Convertible Bonds (FCCBs): These are bonds issued by Indian companies in foreign currency and are convertible into ordinary shares of the issuing company. They are commonly known as 'Euro issues' and allow companies to raise foreign currency resources from international markets.
Global Depository Receipts (GDRs): A GDR is a global finance vehicle that allows an issuer to raise capital simultaneously in two or more markets through a global offering. It is a negotiable certificate that usually represents a company's traded equity/debt. The underlying shares correspond to GDRs in a fixed ratio (e.g., 1 GDR = 10 shares). GDRs may be used in public or private markets inside or outside the US.
American Depository Receipts (ADRs): An ADR is a physical certificate evidencing ownership of American Depository Shares (ADSs). ADSs are US dollar-denominated forms of equity ownership in a non-US company, traded on NYSE, AMEX or quoted on NASDAQ. They provide US investors a convenient way to invest in overseas securities, though they do not eliminate currency risk.
Source: Foreign Capital Issuance, Chapter 3
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Explanation
- The examiner expects definitions of all three instruments — FCCBs, GDRs, and ADRs — since the question asks for all three.
- Note: The textbook does not give a separate elaborate definition of FCCBs beyond calling them 'Euro issues' used to raise foreign currency; keep that brief.
- For GDRs, the fixed ratio example (1 GDR = 10 shares) is a useful detail to include.
- For ADRs, mention the key exchanges (NYSE, AMEX, NASDAQ) and the USD denomination — these are frequently tested points.
- Do not confuse ADR (the certificate) with ADS (the actual share form); the question only asks for ADR, so a brief mention of ADS within it suffices.