UNIT 13 SOURCES OF GLOBAL FINANCING

Objectives
After reading this unit you should be able to:
• identify various sources of global financing that a country can opt for;
• define Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI);
• explain how international money markets function; and
• analyse the trends in India’s global sources of financing.

Structure
13.1 Introduction
13.2 Foreign Direct Investment (FDI)
13.3 Foreign Portfolio Investment (FPI)
13.4 External Commercial Borrowings (ECBs)
13.5 International Money Markets
13.6 Foreign Aid
13.7 Trade Financing
13.8 American Depository Receipts (ADRs)
13.9 Global Depository Receipts (GDRs)
13.10 Trends in India’s Global Sources of Financing
13.11 Summary
13.12 Key Words
13.13 Self-Assessment Questions
13.14 References/ Further Readings

13.1 INTRODUCTION

International Trade has now become an integral factor to determine a country’s economic growth
prospects. However, trading across national borders does involve costs which are to be incurred by
the domestic exporters (or importers) such as costs associated with the shipment of merchandise,
import payments, costs associated with selling goods to authorised third parties of sale, etc.
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A country with a financial robustness can be able to incur all its expenses related to foreign trade.
However, in due course of time and with strengthening of cross-border relations among trading
partners, various sources of trade financing have come up, which may ensure complete safety to
both the importers and exporters of a country, the most important among them being the
strengthening of global financial market operations. This unit will make you familiar with various
sources of global financing that a country can opt for, while engaging in cross-border trading.
Countries are involved in cross-border transactions given flow of goods, services and capital. This
requires dealing in a number of currencies. Further, the financing of transactions through various
means also assumes a lot of importance. Transactions may be settled in advance or at a later date.
This requires a well functioning global financial system. Countries may be capital surplus or
deficient. The movement of capital across countries follows certain rules. In this unit we are going
to look at some of the popular means of global financing.

13.2 FOREIGN DIRECT INVESTMENT (FDI)

Foreign Direct Investment (FDI) can be defined as an investment made by an individual or a firm of
one country into the business interests of another country. In general, FDI occurs when an investor
set up business operations or purchases assets in a foreign company. If an American multinational
company, for example, intends to set up its operations in India or New Zealand, either by partnering
with a local firm or by opening up its own branch, it is considered as an FDI.

FDI is actively operational in open economies that are capable of offering a trained labour force and
remarkable economic growth prospects for an investor to invest. It involves both capital investment
as well as provisions of management or technology.

FDI can be done in multiple ways which may include entering into a merger or joint venture with a
foreign enterprise or opening of a subsidiary or an associate firm in a foreign land.

The threshold for a FDI to establish a controlling interest in the business making decisions of the
foreign company is set as per the guidelines of the Organization of Economic Cooperation and
Development (OECD) which is a minimum 10% stake in a foreign based stake.

Types of Foreign Direct Investment (FDI)

FDI is commonly categorised as:

• Horizontal FDI: It refers to the investor establishing a business operation in a foreign country,
similar to that operating in the home country. For example, a cell phone service provider in US
opening its stores in India.

• Vertical FDI: It refers to setting up of different business-related activities, from the investor’s
main business, in the foreign land. For example, a manufacturing company in US may wish to
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 set up a company supplying raw materials or parts, or may wish to merge with a local company
supplying materials, in the foreign country.

• Conglomerate FDI: A type of FDI in which a company wishes to make an investment in a

business, in a foreign country, which is not related to its current business in the domestic
country. Such an investment, by an investor doesn’t involve any prior experience, they usually
opt for a joint venture in a business already operating in that foreign country.

Activity 1
India recorded the highest ever FDI inflows in the Financial Year 2020-21. Identify the
sectors that attracted the highest FDI during 2020-21. Also, identify the top investors that
invested during FY 2020-21. (You may consult the DIPP’s website)
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13.3 FOREIGN PORTFOLIO INVESTMENT (FPI)

Foreign Portfolio Investment (FPI) refers to investments by residents of one country in a foreign
country’s securities which include shares, bonds (government or corporate), convertible securities,
infrastructure securities, etc. Those investing in these securities are termed as the Foreign Portfolio
Investors.
FPI is one of the major components of the capital account for a country and is reflected in the
Balance of Payments (BoP). It consists of passive ownership, unlike FDI, where investors do not
have any control over ventures or direct ownership of property or stake in a company.
FPI is mainly encouraged by the differences in equity price scenario, bond yield, prospects of
growth, rate of interests, dividends and rate of return on capital in the foreign country’s financial
assets.
In case of India, Securities and Exchange Board of India (SEBI) has stipulated the criteria for FPI to
be less than or equal to 10% of capital in a company in the year 2016, while above 10% will be
considered as FDI.

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13.4 EXTERNAL COMMERCIAL BORROWINGS (ECBs)

External Commercial Borrowings (ECBs) can usually be defined as the commercial loans (debt-
based funding arrangement between a business and a financial institution such as bank, to finance
major capital expenditures or operational costs of a company) which can be in the form of bank
loans, securitized instruments such as floating or fixed rate bonds, partially, optionally or non -
convertible preference shares, buyer’s credit or supplier’s credit availed from the non-resident
lenders with a minimum average maturity period of 3 years.
Following are the main advantages of ECBs:

a) ECBs are allowed by the Government of India, as a source of financing existing as well as
new investment projects, at a much cheaper rate.

b) ECBs are mainly encouraged in the infrastructural areas such as telecom, railways, power,
urban infrastructures as well as Small and Medium Enterprises (SMEs).

c) ECBs can be accessed both under Automatic and Approval route. Those accessed under the
Automatic route do not require any approval from the Government of India or the Reserve
Bank of India (RBI). Such ECBs are usually applied for investments in industrial sector,
infrastructural sector or some specified service sector in India. The ECBs which come
through approval from the RBI/Government of India falls under the Approval route.

d) ECBs have other advantages such as diversification of the investor’s base and providing
international recognition to the companies.

ECBs have some disadvantages too. To mention among them,

a) ECBs tend to increase a country’s external debt and as a result increase the borrower’s
foreign exchange rate risk.

b) Such foreign currency fluctuations may lead to a loss which may succeed the savings in
interest costs.
To avoid these, there is a capping set on the ECBs in a financial year and an overall cap on the
ECBs in different sectors, which are subject to change by the RBI/Govt. of India.

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Activity 2
ECBs, the largest component of India’s external debt declined by 5.8 per cent at end-
September, 2020. This may be due to India opting for ease of doing business policy
measures during the pandemic. It may also be due to reduction in economic activities due to
the pandemic. Write a brief note on the same. (You may consult the Economic Survey,
2021)
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13.5 INTERNATIONAL MONEY MARKETS

The international trade and foreign direct investments have, by far, witnessed a large significance
across the globe, when it comes to expanding its base for trading goods and services across national
borders, as well as, as a source of global financing. The purpose of international money markets
hereby comes into action, which makes this financing much easier, through facilitation of
borrowing of foreign currencies for financing its imports or debts.
The international money markets usually comprise of the following:
i) The Eurocurrency Markets: Any freely convertible currency, which is deposited in a
bank, outside the country of its origin, is termed as a Eurocurrency. The US dollars, for
example, if deposited in a bank in London or Singapore are termed as Eurodollars. US dollar
deposits in Hong Kong or Malaysia is termed as Eurodollar deposits. Such kinds of deposits
are being maintained in a foreign bank or a foreign branch of a domestic bank. Such banks,
which accept deposits and facilitate loans in foreign currency, are termed as Euro banks.

ii) The Eurobond Markets: Eurobonds are bonds traded in any freely convertible currency
outside the country of its origin. Eurobonds are either frequently grouped together by the
currency in which they will be denominated such as Eurodollars or Euro-yen bonds. The

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 significance of the Eurobonds is that they help organizations or countries raise capital with
the flexibility of issuing them another currency.

The issuance of the Eurobonds is usually handled by a depository bank or an international

financial organization, on behalf of the borrower, which underwrites the bond and takes the
guarantee of purchasing the entire issue. The Eurobond markets have seen enormous growth
since the 1980s and a much wider range of credits are being issued at present, which
includes emerging market corporates and sovereigns and structured notes (asset and
mortgage-backed securities).

iii) Euro Notes and Euro-Commercial Papers: The Euro banks issue short-term note
issuance facilities (SNIFs) or simply note issuance facilities (NIFs), as a low-cost
alternative of Eurobonds, which permits the borrowers to issue their own short-term Euro
notes, that are distributed by those Eurobanks to other foreign countries or companies apart
from the borrowing country or company. These are short-term debts issued by large
corporate houses with excellent credit ratings.

NIFs usually include:

1. Various contract features offered by Multiple Pricing Components which include a market-
based rate of interest and quite a few more fees known as participation, facility and
underwriting fees.

2. Other fees that are charged annually or based on full size of the NIF.
Under the NIFs, the notes that are being issued are also at times referred to as the Euro
Commercial Paper, if they are not underwritten.

Following are the differences between the US and Euro CP:

1. The maturity period of a Euro CP, on an average, is twice as long as that of an US CP.

2. The Euro CP is significantly traded in the secondary market whereas the US CP is traded by
its actual investors.

3. Central and commercial banks as well as corporations are also an essential part of the
investor’s base in case of Euro CP whereas US CP holders are mainly confined to the
money market funds.

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13.6 FOREIGN AID

Any kind of an assistance that a country voluntarily transfers to another country in the form of a
gift, grant or loan is known as a Foreign Aid. It is usually offered by the developed nations to the
developing or least developed nations during the times of a natural calamity, economic crisis or
during political instability. According to the United Nations, the developed countries are required to
have an expenditure share of at least 0.7% of their gross national income on foreign aid.
Types of Foreign Aid
An international aid can be granted as follows:
• Foreign Direct Investment (FDI): Private FDI by multinational companies is a primary
type of foreign aid in the form of foreign development assistance. They are usually in the
form of equity holdings of foreign assets by non-residents of the recipient country. US
companies, for example, may engage in FDI by purchasing shares of an Indian company.

• Foreign aid can be in the form of several development tools which are being funded by
the government agencies or foreign non-profit organizations to tackle problems associated
with poverty. This usually comes in the form of humanitarian assistance from the wealthier
countries which are the member countries of the Organization for Economic Cooperation
and Development (OECD).

• Engaging in foreign trade is a third primary type of foreign aid, where a country’s
openness to foreign trade may lead to development process, especially among the least
developed (or poorer) countries, along with political stability and economic freedom.

• Bilateral Aid: This kind of foreign aid is prevalent, where the government of one country
transfers money or other kind of assets, directly to the recipient country. An example of a
bilateral aid is the American bilateral aid programs which aim at spreading economic
growth, development and democracy.

• Military Aid: It is also a form of bilateral aid in which a nation involves in purchasing of
arms or signs direct defence contracts with the US. The federal government, in some
instances, procures the arms, and transport them to the recipient country. Israel receives
major military aid from the US.

• Multilateral Aid: Similar to bilateral aid, multilateral aid is provided by many

governments, instead of one, to the recipient country. In this case, a single international
organization (such as the World Bank) collects funds as donated by governments of
different countries and transfers the same to the recipient country. Multilateral aid comprises
a very small part of the US agency for international development foreign aid programs.

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 • Humanitarian Assistance: It is a form of aid which is usually provided in times of natural
disasters, political instability or a severe economic crisis. Such kind of efforts gets a higher
amount of private funding than other types of aid.

South Asia received more funds from the advanced economies during an earthquake, which
recorded a magnitude of 9.1, and was triggered by a tsunami, killing around 2 lac people.

13.7 TRADE FINANCING

Financing is an important part of trading goods and services abroad. The exporters may require
financing while buying or manufacturing of goods whereas importers may require the same for the
purpose of inventory investment or procuring goods and services from foreign land.
There are five principal means of trade financing, which are being ranked in terms of its increasing
risk to its exporters:
i) Cash in Advance: This offers the greatest protection to the exporter as the
transactions are done mostly in cash, either before or after the arrival of the goods.
An exporter usually prefers cash terms, in situations like a political instability in the
importing country or when the buyer’s credit seems to be risky or doubtful, as these
may cause delays in payments or even completely stop the fund transfers. Cash in
advance, in such cases, enables the exporters to both finance its production and
reduce marketing risks.

ii) Documentary Credit (D/C): A documentary credit (or documentary letter of credit)
is a form of letter which is addressed to the seller (or exporter), written and signed by
a bank acting on behalf of the buyer (or importer). In the letter, the bank promises to
honour the drafts drawn on itself if the seller conforms to the specific conditions as
mentioned in the documentary credit.

The major types of a Documentary Credit that are prevalent include:

a) Revocable D/C: Means of arranging payments, which doesn’t carry a guarantee.

b) Irrevocable D/C: Refers to the means of arranging payments under specific
permissions of all parties concerned, including the exporter.
c) Confirmed D/C: A Confirmed D/C is the one which is issued by one bank and
confirmed by another, obligating both the banks to honour any drafts drawn in
compliance.
d) Unconfirmed D/C: Under an unconfirmed D/C, it is the obligation of only the
issuing bank, without being confirmed by another bank.

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 e) Transferable D/C: This type of D/C issues the right to the beneficiary to instruct the
paying bank for making the credit available to one or more secondary beneficiaries.
A D/C is non-transferableif not authorized in the credit.

iii) Draft: Drafts are commonly used means of financing in international trade. It is an
unconditional order in writing, usually signed by the seller (or exporter) and
addressed to the buyer (or importer) or the importer’s agent – ordering the buyer to
pay on demand or at a fixed future date, the amount mentioned on its face. It is also
known as a bill of exchange.

A draft serves three most important functions, which include:

a) Provision of written evidence, in clear and simple terms, of a financial obligation.

b) Enabling both the parties (importer and exporter) to potentially reduce their costs of
financing.
c) Provision of a negotiable and unconditional instrument (i.e. the payment must be
made to any holder despite any disputes over the principal commercial transaction).
Drafts can be negotiable under the following conditions:
• It must be in a written format
• Must be signed by the issuer (drawer)
• Must be an unconditional order to pay
• Must be a certain sum of money
• Must be payable on demand or at a fixed future time
• Must be payable to order of bearer
Drafts can be:
a) Sight Drafts: Drafts paid on presentation or else dishonoured.

b) Time Drafts: Drafts payable at some specified future date. A matured time draft is
termed as its usance or tenor. A time draft is said to become an acceptance, if it is
being accepted by the drawee by authorizing with a signature and date. A draft,
which is accepted by a bank is termed as banker’s acceptance and that drawn on and
accepted by a commercial enterprise is termed as a trade acceptance.

c) Clean Draft: This kind of draft is not accompanied by any other official papers and is
usually required for non-trade payment settlements only. It is primarily focused on
pressurizing any non-complaint debtor to pay or accept the draft, failing which may
lead to damage to its credit reputation.

d) Documentary Draft: Such a kind of draft can either be Sight or Time Drafts and are
usually accompanied by other official documents which are to be delivered to the

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 drawee on payment or on acceptance of the draft. The official documents include
mainly the bill of lading in negotiable form, the commercial invoice (of trading), the
consular invoice (document certifying the shipment of goods and shows information
such as the consignor, the consignee and value of the shipment) and an insurance
certificate.

iv) Consignment: Under a Consignment, goods sent are only shipped but are not sold to
the importer. In this kind of an arrangement, the goods are left in possession of an
authorized third party to sell. The exporter (consignor), on selling goods in
consignment, draws a portion of the profits, either as a flat rate fee or commission.
Goods and services sold in the consignment arrangement mode can be of low-
commission and low time- investment way of selling.

This mode of financing usually involves large risks. The exporter need to carefully
verify the credit risks involved along with the availability of foreign exchange in the
importer’s country. If the buyer defaults, it becomes difficult for the exporter to
collect the payments for his shipment.

v) Open Account: Open account selling involves shipping of goods first and then
billing the importer later. The credit terms are arranged between the importer and the
exporter and in these kinds of arrangement, the exporter doesn’t have much
information about the importer’s obligation to pay. Open account selling is usually
preferable with the foreign affiliates or with a customer with whom the exporter has
long history of favourable business dealings.

Open account selling has seen a vast expansion with increase in the volume of
international trade as it has witnessed an improvement in credit information about the
importers and a greater acquaintance with the exporting in general.

The benefits of an open account selling include greater flexibility of trading and
payments (no specific dates of payment set), lower costs and fewer bank charges.

Banks and Trade Financing

Banks are usually involved for providing loans or a documentary credit, when it comes to
financing international trade. However, as financing became a fundamental aspect of trading,
the banks – especially the international banks have started evolving as well. The banks now
provide financing of discrete trade deals, and assist with comprehensive solutions to trade needs
such as facilitation of combined lending by banks with subsidized funds from the government
export agencies, international leasing, other non-bank financing resources, along with other
associated political and economic risk insurance.

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 Activity 3
With the help of internet sources, find out the predominant method of payments opted for by
Indian firms to finance trade.
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13.8 AMERICAN DEPOSITORY RECEIPTS (ADRs)

A negotiable certificate which is being issued by a US Bank and represents a specified number of
shares of a non-US company which is being traded on a US Exchange is termed as an American
Depository Receipt. They are measured in US Dollars and are transacted in the US stock market
similar to stocks of any other US company, and are issued in US by an US bank.
The ADRs are listed in either New York Stock Exchange (NYSE) or the American Stock Exchange
(AMEX) or the National Association for Securities Dealers Automated Quotation (NASDAQ).
ADRs offer the US investors, an opportunity to purchase stocks of foreign companies, in the US
market in US dollars. On the other hand, it also benefits the foreign companies by enabling them to
attract American investors and trade its share in the US market without the hassle and expense of
listing in the US stock exchanges.

ADRs can be:

Sponsored ADRs: When a foreign company enters directly into an agreement with the depository
bank of US for maintaining records, communicating with the ADR holders, payment of dividends
and other shares.
Non-sponsored ADRs: When there is no involvement of any US depository bank and the foreign
company wishes to establish itself in the US trading market with the help of a broker-dealer.

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There are three types of ADRs:

Level 1 ADRs: These ADRs does not intend to raise capital. They are listed in the exchange and
traded only over-the-counter market. No information about the issuer company in the US Securities
Exchange Commission (SEC).

Level 2 ADRs: These ADRs are either listed on an exchange or quoted on NASDAQ. They too, like
the level 1 ADRs, do not wish to raise capital but are required to file annual reports in the US
Securities Exchange Commission (SEC).

Level 3 ADRs: The most important category of ADRs which are issued to raise money and trade in
the US exchange market. They are also required to file annual reports to SEC.

In case of the sponsored ADRs, a fee is charged by the US depository bank, while making an
agreement with the foreign company for rendering its services to the ADR holders. Such a fee is
called the Custody fee and is often deducted from the gross dividend, by the foreign company, and
the net dividend is paid to the ADR holders.

13.9 GLOBAL DEPOSITORY RECEIPTS (GDRs)

A bank certificate which is issued in more than one country for shares in a foreign company is
termed as a Global Depository Receipt. They are listed in two or more markets – mainly the US and
the Euro markets are denominated in a freely convertible foreign currency.
A foreign company issues shares to the depository bank of the share trading country. The
Depository bank then issues GDRs against these shares to the investors of the other foreign
countries. In case of GDRs, the GDR holders are not the shareholders of the share issuing company.
The depository bank becomes the main shareholder of the issuing company and also has the voting
rights.

13.10 TRENDS IN INDIA’S GLOBAL SOURCES OF FINANCING

Indian domestic markets have been sluggish when it comes to raising of funds for their business
needs. As a result, Indian companies have shifted their focus towards international fundraising
sources through several traditional and non-traditional channels available, some of which are
mentioned as follows:

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1. Equity based channels are open for the Indian business environment as a source of
financing. They may be in the form of:
a) Foreign Direct Investment policy, which is a liberal and balanced policy, where
global investors can invest in almost all sectors. Saving in a few sensitive sectors
like retail and insurance is quite easy, as 100% foreign equity participation is
available.
b) Investment funds, in the form of pure financial funds, sovereign funds, social
impact funds or other related institutions have at least two main attractions for
investments – investing in the industry or sector of the target business customers,
and having an appetite to invest in India.
c) Partnership with foreign companies through Joint Ventures works best if the
partnering companies belong to a technology and capital rich country. Joint
venturing allows access to the capital markets of the foreign partnering
companies for additional equity and low-cost debt. Some European economies
have the foresight to invest in emerging market economies in order to overcome
the saturation in their own investment sectors.
d) Listing of Indian companies in stock markets and other alternative investment
exchanges is available in most of the advanced economies. This can be available
through organic listing by means of an Initial Public Offering (IPO) or with the
help of a reverse merger with an already existing company followed by stock
offerings. Canada, US and Singapore stock markets are best suited for such kind
of transactions.
e) Equity guaranteed debt rely on the reputation of a Joint Venturing partner or a
significant partner shareholder that floats a loan for the Indian companies and
guarantees it locally, thereby making fundraising by Indian businesses easier and
more economical.

2. Debt based instruments include major banks and other financial institutions as primary
choices of raising debt funds from foreign sources. Quite a handful of commercial banks in
major economies like US, Japan, China, UK, Switzerland, Canada and Taiwan provide
funds to Indian businesses for financing their business needs. Debts from banks and large
financial institutions such as the World Bank, the International Monetary Fund, the US
International Development Finance Corporation and the Asian Development Bank are
mostly suited to finance Indian projects of economic importance.

Smaller banks and debt funds are mostly accessible to the MSME Sectors for providing loans
and funds with an interest rate higher than the larger institutions but lower than the domestic
funders. Partner companies through joint ventures provide channels for funding through their
own banking relationships, by leveraging low-cost debt themselves followed by a low-cost debt
as another alternative lender to its own business under the current Indian external commercial
banking policy.

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Besides business development funding, there are certain European banks that are willing to
finance global businesses of their clients by providing debts at economical rates in emerging
economies like India as long as the foreign partner company is a part of the business.

Alongside these financing options, Indian business firms are now open to trade factoring in
businesses with reputable importers of their products. Export finance is greatly beneficial when
buying capital goods from advanced economies like US, Canada, China and Japan. Extreme low-
cost financing options are also available for the right customers in India.

Setting up of a subsidiary of an Indian company in a foreign capital rich economy is another

option of securing low-cost finance, as many schemes and opportunities for growth can be
availed using this method for the reputable business firms in India.
Foreign Capital markets are thus, a valuable source of financing for the Indian businesses and it
is a perfect opportunity for them to access such global capital markets and accrue more of capital
reserves in the near future.

Activity 4
1. Identify any top 5 Indian companies (using internet resources) and their sources of global
funding.
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2. Can you list world’s top 5 private equity companies that have invested in India. (Use
Internet sources like GlobalEdgeTM)
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13.11 SUMMARY

Global trading is an essential factor for determining a country’s economic growth prospect. But it
also comes with some costs involved during purchase and sale of merchandise across geographical
boundaries, such as costs associated with the shipment of goods, payments to exporters, etc. A
country with a strong financial backbone can bear all its financing of trade expenses. However, with
the passage of time, cross-border trading relations strengthened and gave rise to several sources of
trade financing have emerged for the trading countries in the form of Foreign Direct and Foreign
Portfolio investments, External Commercial borrowings, Foreign Aid, American Depository and
Global Depository Receipts and International money markets (which includes Eurocurrencies,
Eurobonds, Euro notes, etc.). As far as the payment terms between the exporter and the importer is
concerned, five additional means of financing trade have been identified and ranked as per the
associated risks for the exporters. Such means include payments through Cash in Advance, Drafts,
Documentary Credits, Consignments and Open Account Selling, and banking operations.
Countries can now opt for their sources of funding, as required, without involving much of the
depletion of its foreign stock of reserves.

13.12 KEY WORDS

Credit Rating: A quantitative assessment of a borrower’s credit worthiness in terms of a particular

debt or financial obligation. It can be assigned to any entity, be it an individual, a company or a
sovereign government.
Small and Medium-sized Enterprises (SMEs): SMEs are non-subsidiary, independent firms (or
business operations) which employ fewer than a certain limit of employees. Small and medium
enterprises generally have 50 or less than 50 employees while micro firms operate with at most 10,
or in some cases, 5 employees.
Organization for Economic Co-operation and Development (OECD): OECD Founded in 1961
and headquartered in Paris, France, is a 38-member intergovernmental economic organization
which aims towards encouraging economic progress and trade worldwide. It also provides a forum
for its member countries who are committed to democracy and market economy to compare their
policy experiences, identifying problems and seeking answers to them, and identifying good
practices and coordinating domestic and international policies of its members.
National Association of Securities Dealers Automated Quotations (NASDAQ): Founded in
1971, NASDAQ is an American stock exchange market based in New York City and ranked second
in the list of stock exchanges after the New York Stock Exchange. It is owned by NASDAQ Inc.
which also owns the NASDAQ Nordic stock market network and various US Stock and Option
exchanges. NASDAQ allows its investors to buy and sell stocks in an automated, transparent and a
faster computing network.

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Morgan Stanley Capital International (MSCI): Founded in 1969 the MSCI is an American
financial company which is based in New York City and serves as a global provider of fixed
income, equities, hedge fund stock market indexes, multi-asset portfolio analysis tools and
Environmental, Social and Governance (ESG) factors products.
Joint Venture (JV): A type of business entity created by two or more parties, generally
characterised by shared ownership, shared returns and risks, and shared governance. Companies
usually engage into a Joint Venture to access to a new market (especially emerging markets),
gaining efficiencies of scale, sharing risks for major investments or projects and for accessing
newer skills and potentialities.
Initial Public Offering (IPO): An IPO (also referred to as Stock Launch) is a public offering in
which shares of a company are sold to institutional investors and retail investors. An IPO is usually
underwritten by one or more investment banks, who arranges for the shares to be listed in one or
more stock exchanges.

13.13 SELF-ASSESSMENT QUESTIONS

1. State the differences between Foreign Direct Investment (FDI) and Foreign Portfolio Investment
(FPI).
2. What are the advantages and disadvantages of External Commercial Borrowings (ECBs)?
3. What are the components of International Money Markets? Explain in detail.
4. What is Foreign Aid? State the types of Foreign Aid.
5. What are American Depository Receipts (ADRs) and Global Depository Receipts (GDRs)?
Explain.
6. State and explain the five principal means of trade financing.
7. What are the various types of Documentary Credits? Explain their purposes.
8. What are the five major trends that India’s financial account is witnessing in the recent times?
Elaborate.

13.14 REFERENCES/ FURTHER READINGS

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