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Premium member Presentation Transcript International Financial Management: International Financial Management Presentation By: Chaitra Datta Deepak Gayatri Hanumanth Harish Irfan ImranIntroduction: Introduction Any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.Foreign Exchange market: Foreign Exchange market The foreign exchange market is a global, worldwide-decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellersPowerPoint Presentation: The foreign exchange market is unique because of its huge trading volume representing the largest asset class in the world leading to high liquidity; its geographical dispersion; its continuous operation: the variety of factors that affect exchange rates; the low margins of relative profit compared with other markets of fixed income;FOREIGN EXCHANGE MARKET: 12/22/2011 lecture - 1, IFM III unit 5 FOREIGN EXCHANGE MARKET TYPES & PLAYERS RETAIL MARKET WHOLESALE MARKET OR INTERBANK MARKET TRAVELLERS TOURISTS COMMERCIAL BANKS FOREX BROKERS CENTRAL BANKS MNCs INDIVIDUALS AND SMEsPLAYERS: 12/22/2011 lecture - 1, IFM III unit 6 PLAYERS RETAIL MARKET THE TRAVELLERS AND TOURISTS EXCHANGE ONE CURRENCY FOR ANOTHER IN THE FORM OF CURRENCY NOTS OR TRAVELLERS CHEQUES.PLAYERS: 12/22/2011 lecture - 1, IFM III unit 7 WHOLESALE MARKET COMMERCIAL BANKS – participates in foreign exchange on behalf of their clients At retail level enters through inter bank market or through specialized brokers. At bulk level enters through inter-bank wholesale market or international banks and brokers PLAYERSPLAYERS: 12/22/2011 lecture - 1, IFM III unit 8 WHOLESALE MARKET FOREX BROKERS – They act as agents who facilitate trading between dealers. PLAYERSPLAYERS: 12/22/2011 lecture - 1, IFM III unit 9 WHOLESALE MARKET CENTRAL BANKS – Central banks frequently intervene in the foreign exchange market to maintain the exchange rate at desired level PLAYERSPLAYERS: 12/22/2011 lecture - 1, IFM III unit 10 WHOLESALE MARKET MNCs – MNCs are participating in forward exchange market PLAYERSPLAYERS: 12/22/2011 lecture - 1, IFM III unit 11 WHOLESALE MARKET INDIVIDUAL – They took part in foreign exchange market for their investment and commercial activities PLAYERSSpot FX : Spot FX A spot foreign exchange transaction involves the purchase of one currency against the sale of another at an agreed price for delivery on a value date which is usually the trade date plus two working days, the traditional ‘spot value’.Features of Spot Market: Features of Spot Market The currencies are traded for immediate delivery. Takes 2 working days after transaction takes place. The currencies are delivered at a future date.The Euro: Global Currency? : The Euro: Global Currency? Initially launched in 1999 as accounting currency to replace the European Currency Unit (ECU) and distributed widely by 2002 as physical banknotes and coins, the euro has rapidly joined the ranks of truly international currencies.PowerPoint Presentation: On the whole, the euro has gained the widest usage in international financial transactions, especially with respect to denominating international debt securities. In fact, the euro already has the leading position, according to the Bank for International Settlements, when it comes to international bonds and notes. These are debt instruments denominated in either local or foreign currency but marketed to nonresidents of the issuing country.'Cross Currency' : 'Cross Currency' Is an currency rate between a currency pair where neither currency is the US dollar. The currency exchange rate can be calculated from the US dollar exchange rates for two currency, using either European or American terms quotations. Ex:- the euro/pound cross rate can be calculate from American term quotation.CAPITAL MARKET : CAPITAL MARKET A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year PRIMARY MARKET SECONDARY MARKETPRIMARY MARKETS: PRIMARY MARKETS PRIMARY MARKET : FIRST TIME SALES OF EQUITY also called the new issue market, is the market for issuing new securities. Many companies, especially small and medium scale, enter the primary market to raise money from the public to expand their businesses. They sell their securities to the public through an initial public offering.SECONDARY MARKET : SECONDARY MARKETMONEY MARKET : MONEY MARKET The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills , commercial paper , certificates of deposit, federal funds etc.Differences b/w money and capital markets: Differences b/w money and capital markets 1. Maturity Period: The money market deals in the lending and borrowing of short-term finance (i.e., for one year or less). capital market deals in the lending and borrowing of long-term finance (i.e., for more than one year).PowerPoint Presentation: 2. Credit Instruments: The main credit instruments of the money market are call money, collateral loans, acceptances, bills of exchange. On the other hand, the main instruments used in the capital market are stocks, shares, debentures, bonds, securities of the government.PowerPoint Presentation: 4. Institutions: Important institutions operating in the' money market are central banks, commercial banks, acceptance houses, nonbank financial institutions, bill brokers, etc. Important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, mortgage banks, building societies, etc.PowerPoint Presentation: 5. Purpose of Loan: The money market meets the short-term credit needs of business; it provides working capital to the industrialists. The capital market, on the other hand, caters the long-term credit needs of the industrialists and provides fixed capital to buy land, machinery, etc.PowerPoint Presentation: Financial InstrumentsSome of Financial Instruments: Some of Financial Instruments IDR GDR ADR FCCB Income Bond Zero coupon bondIndian Depository Receipts: Indian Depository Receipts What are Indian Depository Receipts (IDRs)? IDRs are rupee-denominated and created by a domestic depository against the underlying equity shares of a foreign company. Who can issue IDRs? Any company listed in the country of incorporation can issue IDRs. How will it work? : How will it work? The minimum issue size is $500 million . IDRs will be issued through a public offer in India in the demat form and will be listed on Indian exchanges. Except attending annual general meetings and voting on resolutions, other rights are available.PowerPoint Presentation: Are there tax issues? IDRs are not subject to securities transaction tax. Besides, dividends received by IDR holders will not be subject to dividend distribution tax. What are the benefits for the issuing company? The main benefit is in terms of branding, besides allowing foreign companies to access Indian capital. It is also seen as the platform for creation of acquisition currency and a management talent pool.American Depositary Receipt : American Depositary Receipt American depositary receipt (ADR) was introduced in 1927 as a more convenient way for investors to buy and sell shares of foreign corporations . An American Depository Receipt, is a security issued by a U.S. depository bank to domestic buyers as a substitute for direct ownership of stock in foreign companies . An ADR can represent one or more shares, or a fraction of a share, of a non-U.S. company. Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADSs).PowerPoint Presentation: With ADRs, however, investors can take advantage of foreign markets while trading in U.S stock markets. The bank choosing to issue the ADR controls the number of foreign shares each ADR represents. Therefore, any change in price in the foreign company's stock applies to the change in price of the ADR. Deutche Bank is one of the largest depositary banks handling depositary servicesGlobal Depositary Receipts : Global Depositary Receipts A global depositary receipt ( GDR ) is similar to an ADR, but is a depositary receipt sold outside of the United States and outside of the home country of the issuing company. There are more than 900 GDR’s listed on exchanges worldwide, with more than 2,100 issuers from 80 countries.PowerPoint Presentation: A GDR is issued and administered by a depositary bank for the corporate issuer . The largest depositary banks in the United States are JP Morgan, Bank of New York Mellon, Citibank . GDRs benefits: invest in foreign companies, corporate rights, especially voting rights, to the holders of GDRs, easier trading, the payment of dividends in the GDR currency . Foreign Currency Convertible Bonds : Foreign Currency Convertible Bonds Foreign currency convertible bond (FCCB) is a convertible bond issued by a country in a currency different than the its own currency.PowerPoint Presentation: What is the criteria for issuing FCCBs ? ● permission of the Department of Economic Affairs, Ministry of Finance, Government of India. ● The company issuing the FCCB should have the consistent track record for a minimum period of three years ● The Foreign Currency Convertible Bonds shall be denominated in any freely convertible foreign currency and the ordinary shares of an issuing company shall be denominated in Indian rupees ● The issuing company should deliver the ordinary shares or bonds to a DomesticIncome Bond : Income Bond A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment.PowerPoint Presentation: The income bond is a somewhat rare financial instrument which generally serves a corporate purpose similar to that of preferred shares. It may be structured so that unpaid interest payments accumulate and become due upon maturity of the bond issue it can be a useful tool to help a corporation avoid bankruptcy during times of poor financial health or ongoing reorganization.Zero Coupon Bonds : Zero Coupon Bonds Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount a bond will be worth when it "matures" or comes due.PowerPoint Presentation: Maturity- long term Investors can purchase different kinds of zero coupon bonds in the secondary markets that have been issued from a variety of sources, including the U.S. Treasury, corporations, and state and local government entities. You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.