INTERNATIONAL FINANCIAL

MARKET INSTRUMENTS &

INTERNATIONAL FINANCIAL INSTITUTIONS

Presented by:-

VINEETHA

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International financial market

instruments

TYPES

International bonds Foreign bonds & Euro bonds

Global bonds

Straight bonds

Floating rate notes

Convertible bonds

Cocktail bonds

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Types

Short & medium term instruments Euro notes

Euro commercial paper

Medium term euro notes

OTHERS

ADR

GDR

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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

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

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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

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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

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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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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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

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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

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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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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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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

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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.

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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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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.

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