International Capital Markets: Eurocurrency, Eurobonds, ADR/GDR, FDI vs FPI and Cross-border Listings Questions

Question 1

Define international capital market.

Accepted Answer

**International capital market** is the market where long-term funds are borrowed and lent across national boundaries through equity, bonds and long-term loans.

Question 2

What is eurocurrency?

Accepted Answer

**Eurocurrency** is any currency deposited in banks outside its home country (e.g., USD deposits in London are Eurodollars).

Question 3

What is a Eurobond?

Accepted Answer

**Eurobond** is an international bond issued in a currency different from the currency of the country where it is issued.

Question 4

Expand ADR.

Accepted Answer

**ADR** = **American Depositary Receipt**.

Question 5

Expand GDR.

Accepted Answer

**GDR** = **Global Depositary Receipt**.

Question 6

State one difference between FDI and FPI.

Accepted Answer

**FDI** involves control/long-term management influence, while **FPI** is portfolio investment without control and is more liquid.

Question 7

Explain components of international capital markets (any three).

Accepted Answer

Components of international capital markets (any three):

- **international equity market**: cross-border equity issues, ADR/GDR, cross-listings.
- **international bond market**: Eurobonds, foreign bonds, global bonds.
- **syndicated loans/international banking**: long-term lending by a group of banks.

Thus, international capital markets include both equity and debt channels for raising long-term funds globally.

Question 8

Explain eurocurrency market and its features (any three points) with examples.

Accepted Answer

### **Eurocurrency Market**

Eurocurrency market is the market for deposits and loans in a currency held **outside its home country**.

Features (any three):
- large wholesale interbank market (big transactions).
- can have fewer regulations in some locations.
- supports international lending and global liquidity.

Example:
- **Eurodollar** = USD deposit outside USA.

Thus, eurocurrency markets expand global credit availability and support international trade and finance.

Question 9

Explain Eurobonds: meaning and features (any three) with a small table of types.

Accepted Answer

### **Eurobonds**

**Meaning:** Eurobond is a bond issued in a currency different from the country of issue and sold to international investors.

Features (any three):
- issued in international markets to global investors.
- can be fixed or floating rate.
- helps borrowers raise funds in foreign currency.

Types (basic):

| Type | Example |
|---|---|
| Fixed-rate (straight) | regular coupon |
| Floating-rate note | coupon linked to benchmark |
| Convertible | can convert to equity |

Hence, Eurobonds are a key instrument in international debt markets.

Question 10

Explain benefits of international capital markets for borrowers and investors (any three points each).

Accepted Answer

Benefits (any three each):

**For borrowers (companies/governments):**
- access to a **larger pool of funds** beyond domestic market.
- potentially **lower cost of capital** and better terms.
- ability to raise funds in desired currency and diversify funding sources.

**For investors:**
- **diversification** across countries and currencies.
- access to global growth opportunities.
- risk-return choices across global debt and equity instruments.

Thus, international capital markets improve capital allocation globally and support investment and growth.

Question 11

Explain foreign bonds vs Eurobonds (any three points) with a table.

Accepted Answer

### **Foreign Bonds vs Eurobonds**

- **Foreign bond**: issued by a foreign borrower in a domestic market **in the domestic currency** (e.g., foreign company issuing INR bond in India).
- **Eurobond**: issued in an international market in a currency **different from the country of issue**.
- foreign bonds are subject to domestic market regulations; Eurobonds are typically issued in offshore markets with international distribution.

Table:

| Basis | Foreign bond | Eurobond |
|---|---|---|
| Currency | domestic currency of market | different from country of issue |
| Market | domestic market | international/offshore |
| Regulation | more domestic rules | often lighter/multijurisdiction |

Hence, both are international debt instruments but differ by market/currency structure.

Question 12

Explain ADR and GDR and their benefits (exam-style) with a table.

Accepted Answer

### **ADR and GDR (Meaning + Benefits)**

- **ADR**: receipt issued by a US depository bank representing shares of a foreign company; traded in US markets.
- **GDR**: depository receipt for trading in multiple international markets.

Benefits (any three):
- access to wider investor base and better liquidity.
- improved visibility and credibility.
- ability to raise foreign currency capital.

Table:

| Receipt | Typical market |
|---|---|
| **ADR** | USA |
| **GDR** | global (multiple) |

Thus, ADR/GDR allow firms to access foreign investors with a tradable receipt structure.

Question 13

Differentiate FDI and FPI (exam-style) with a detailed table.

Accepted Answer

### **FDI vs FPI — Exam-Style**

**FDI** is direct investment with control and long-term involvement. **FPI** is portfolio investment without control and is more liquid.

Table:

| Basis | **FDI** | **FPI** |
|---|---|---|
| Control | **yes** (influence) | no control |
| Horizon | long-term | short/medium, more liquid |
| Form | plant, acquisition, JV | shares, bonds |
| Impact | capital + technology/management | mainly financial inflow |
| Stability | more stable | more volatile |

**Conclusion:** FDI is generally more stable and development-oriented, while FPI can be volatile and sensitive to global risk sentiment.

Question 14

Explain cross-border listing: motives, benefits and risks (exam-style) with a flowchart.

Accepted Answer

### **Cross-border Listing — Exam-Style**

**Meaning:** Cross-border listing is listing a company’s securities on a foreign stock exchange.

#### **Motives/benefits**
- access to new investors and better liquidity.
- improved valuation due to analyst coverage and visibility.
- raise capital in foreign currency.
- improved governance and credibility.

#### **Risks/limitations**
- higher compliance and disclosure requirements.
- legal/regulatory risk in foreign jurisdiction.
- exchange rate and market volatility risk.

Flowchart:

```text
Need global capital/visibility → list abroad (ADR/GDR/cross-list) → wider investors & liquidity → higher compliance + FX/market risks
```

**Conclusion:** Cross-border listing can lower cost of capital and increase visibility, but it increases compliance burden and exposure to global market risks.

Question 15

Explain risks in international capital markets (exam-style) with a table.

Accepted Answer

### **Risks in International Capital Markets — Exam-Style**

Major risks:
- **exchange rate risk**: currency mismatch between cash flows and liabilities.
- **interest rate risk**: bond price changes and cost of borrowing changes.
- **country/political risk**: policy changes, capital controls, instability.
- **market and liquidity risk**: foreign market volatility and low liquidity.
- **legal/compliance risk**: multiple regulations and disclosure standards.

Table:

| Risk | What it affects |
|---|---|
| **FX risk** | home-currency cost/return |
| **Interest rate risk** | bond value, borrowing cost |
| **Country risk** | repatriation, stability |

**Conclusion:** International capital market access improves funding and diversification, but firms must manage multi-currency, regulatory, and political risks carefully.

International Capital Markets: Eurocurrency, Eurobonds, ADR/GDR, FDI vs FPI and Cross-border Listings

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