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SAI INTERNATIONAL SCHOOL
CLASS-XI

Sub: Business Studies
Chapter 7: Sources of Business Finance
Topic: International Financing

(LESSON NOTES- 33)
International Financing

With the opening up of an economy and the operations of the business organisations becoming
global, Indian companies have an access to funds in global capital market. Various international
sources from where funds may be generated include:

(i) Commercial Banks: Commercial banks all over the world extend foreign currency loans for
business purposes. They are an important source of financing non-trade international operations.
The types of loans and services provided by banks vary from country to country. For example,
Standard Chartered emerged as a major source of foreign currency loans to the Indian industry.

(ii) International Agencies and Development Banks: A number of international agencies and
development banks have emerged over the years to finance international trade and business. These
bodies provide long and medium term loans and grants to promote the development of
economically backward areas in the world. These bodies were set up by the Governments of
developed countries of the world at national, regional and international levels for funding various
projects. The more notable among them include International Finance Corporation (IFC), EXIM Bank
and Asian Development Bank.

(iii) International Capital Markets: Modern organisations including multinational companies
depend upon sizeable borrowings in rupees as well as in foreign currency. Prominent financial
instruments used for this purpose are:

(a) Global Depository Receipts (GDR’s): The local currency shares of a company are delivered to the
depository bank. The depository bank issues depository receipts against these shares. Such
depository receipts denominated in US dollars are known as Global Depository Receipts (GDR). GDR
is a negotiable instrument and can be traded freely like any other security. In the Indian context, a
GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency
and is listed and traded on a foreign stock exchange. A holder of GDR can at any time convert it into
the number of shares it represents. The holders of GDRs do not carry any voting rights but only
dividends and capital appreciation.

(b) American Depository Receipts (ADRs): The depository receipts issued by a company in the USA
are known as American Depository Receipts. ADRs are bought and sold in American markets, like