Question

Gracious Ltd." is a US based company. The company plans to tap the Indian capital market through its forthcoming issue of equity shares. Outline the instrument through which it can raise funds from the Indian capital market.

Answer 1

Answer:

1. Global depository receipts

2. External commercial borrowing

3. American depository receipts

4. Foreign currency convertible bonds

Explanation:

1. Global depository receipts. When a company buys shares of a foreign company, a certificate will be issued by the local depository bank, which allows for security supported by the shares purchased.

Here, Gracious ltd could raise funds by buying of shares in a company in India hence gives the company an avenue to hold shares in foreign country.

2. External commercial borrowing. These are loans granted to viable companies outside of India who are venturing into commercial businesses. Before theses loans are given, there is what is called eligibility status; which must be reviewed and thus confirm with the reserved bank of India before such loans are given.

3. American depository receipts. These are negotiable capital market instruments, issued by a bank in the United States, which shows the number of shares held by a foreign company, trading in the US capital market. A company could use this as a way of raising funds in the India capital market because it is well backed by the bank in the country where the company is.

4. Foreign currency convertible bonds. Here, a bond is issued in a different currency distinct from the issuer's local currency. What this means is that the money being sought for by the issuing company comes in a foreign currency denomination.