If (3,4,5)

MODULE 3
SPOT MARKET
https://corporatefinanceinstitute.com/resources/capital-markets/spot-market/
FORWARD MARKET
Forward Market - Meaning, Types and Benefits of Forward Market (groww.in)
INTEREST ARBITRAGE (2 marks)
https://www.angelone.in/knowledge-center/share-market/covered-interest-arbitrage#:~:text=Interest
%20arbitrage%20is%20technically%20a,the%20same%20in%20that%20country.
FOREIGN EXCHANGE RATE MOVEMENT THEORIES
https://www.economicsdiscussion.net/foreign-exchange/theories-foreign-exchange/theories-of-exchange-
rate-determination-international-economics/30637- PURCHASE POWER PARITY.
https://penpoin.com/international-fisher-effect/- INTERNATIONAL FISHER EFFECT.
CURRENCY FUTURES
https://www.wallstreetmojo.com/currency- futures/
Features of Currency Futures
Mentioned below are the key attributes of currency futures prices:
 Underlying Asset: This is the currency exchange rate that has been specified.
 Expiration Date: This is the final settlement for cash-settled futures. It is the date on which the
currencies are exchanged for physically delivered futures.
 Size: The sizes of contracts are all the same.
 Margin Requirement: An initial margin is necessary to enter into a futures contract. A maintenance
margin will be established, and if the original margin goes lower than this level - a margin call will
occur, requiring the trader or investor to deposit money in order to raise the initial margin over the
maintenance margin.
CURRENCY OPTIONS
https://www.investopedia.com/terms/c/currencyoption.asp
DIFFERENCE BETWEEN OPTION AND FUTURES

https://www.kotaksecurities.com/futures-and-options/difference-between-futures-and-options/
https://byjus.com/commerce/difference-between-options-contracts-and-futures-contracts/
DERIVATIVES
https://www.angelone.in/knowledge-center/derivatives/what-is-a-derivative
MODULE 4
TYPES OF FOREING EXCHNAGE RISK AND MANAGING OF FOREIGN EXHANGE RISK

REFER STUDY MATERIAL 1 (pg 77-87)
Please note: Under hedging refer only forward contracts and currency option
COMPONENTS OF FOREIGN EXCHANGE RISK MANAGEMENT
https://kirkpatrickprice.com/blog/5-components-risk-management/
MODULE 5
INTERNATIONAL BANKING- TYPES AND FUCTIONS (REFER IB&I NOTES)
DEPOSITORY RECIEPTS:
https://www.wallstreetmojo.com/depositary-receipt/
Meaning of depository receipts:

Depository receipts are a type of negotiable financial security representing a security, usually in the
form of equity, issued by a foreign publicly-listed company. However DRs are traded on a local stock
exchange though the foreign public listed company is not traded on the local exchange.
International capital market comprises of debt and equity market. Debt market includes international
bond market and the equity market includes international equity market. The international equity market
can further be divided into various depository receipts-ADR, GDR and IDR.
(1) ADR- American depository receipts:-
American depository receipts popularly known as ADRs were introduced in the American
market in 1927. ADR is security issued by a company outside the U.S which physically remains
in the country of issue, usually in the custody of a bank, but is traded on U.S. stock exchange in
other words, ADR is a stock that trades in the united states but reprents a specified number of
shares in a foreign corporation.
Different types of ADR programs:

A sponsored ADR is approved and backed by the foreign company behind the shares . an investor
looking at an OTC ADR should verify whether the ADR shares are sponsored and may want to stay
clear of unsponsored shares.
Sponsored ADR is an ADR issued by a bank on behalf of the foreign company whose equity serves as
the underlying asset. A sponsored ADR creates a legal relationship between the ADR and the foreign
company which absorbs the cost of issuing the security.
An unsponsored ADR an ADR issued by a depositary bank without the involvement or participation-or
even the consent -of the foreign issuer whose stock underlies the ADR the issuer therefore has no
control over an unsponsored ADR, in contrast to a sponsored ADR where it retains control.
Unsponsored ADRs are usually established by depositary banks in response to investor demand.
Shareholder benefits and voting rights may not extended to the holders of these particular securities.
Unsponsored ADRs generally trade over-the-counter (OTC) rather than on United States exchanges.
SOPONSORED ADR UNSPONSORED ADR
Issued with cooperation of the company Issued by – broker / dealer or depository bank
whose stock will underlie the ADR without the involvement of company whose
stock underlies the ADR
Comply with regulatory reporting No regulatory reporting
Listing on international Stock Exchanges Trade on OTC market
allowed.
Levels of ADR:
(a) Level 1 ADRs: level 1 ADRs are the lowest level of sponsored ADRs and also the simplest
methodfor companies top aces the US capital markets level 1 ADRs are traded in the over-the-
counter (OTC) market. The issuing company does not have to comply with US market.
(b) Level II ADRs: level II ADRs enable companies to list their ADRs on NASDAQ, the
American stock exchange the new York stock exchange and the American stock exchange, the
new York stock exchange and the American
level II ADRs require a form 20- F and form F-6 to be filled with the SEC, as well as meting the
listing requirements and filling a listing application with the designated stock exchange.
(c) Level III ADRs:- level III ADRs enable companies to list their ADRs on NASDAQ, the Amex,
the NYSE or the OTC bulletin board and make a simultaneous public offering of ADRs in the
united states. The benefits of level III ADRs are substantial; it allows the issuer to raise capital
and leads to much greer visibility in the US market. Level III ADR programs must comply with
various SEC rules, including the full registration and reporting requirements of the SEC’s
exchange act.
GDR- Global depository receipts:
These are similar to the ADR but are usually listed on exchanges outside the U.S, such as Luxembourg or London
Dividends are usually paid in U.S. dollars. GDR allows investors of any country to purchase and sell shares of a
company in any other country, entitling the shareholders to partake in the dividend and capital gains of that foreign
company.
A GDR is set up when a company from one country intends to list its publicly-traded shares in
any foreign country.
1) IDR-Indian depository receipts:
IDR is an exact reverse of the ADR/GDR issue. IDR’s allow foreign companies to mobilizing
funds from India markets these foreign companies get listed on Indian stock exchange. IDR is a
financial instruments denominated in Indian rupees in the form of a depository receipt created by
a domestic depository against the underlying equity of issuing company to enable foreign the
underlying shares would accrue to the depository receipts holders in India. Standard chartered
PLC became the first global company to file for an issue of Indian depository receipts in India in
june 2010. IDR needs to be registered with SEBI.
 SEBI has set Rs.50 crore as the lower limit for the IDRs to be issued by the Indian companies.
 Moreover, the minimum investments required in the IDR issue by the investor has been fixed at
Rs two lakh.
 Also, the IDR issuing company should have good track record with respect to securities market
regulations and companies not meeting the criteria will not be allowed to raise funds from the
domestic market.
Parties involved in ADR/GDR issue:

1) The issue company is the first party this is typically a large foreign based corporation that is
already listed on a local foreign exchange. Rather than dual list its shares on its home exchange
and on a U.S exchange.
2) Custodian bank is the second party in this process. They accept all the relevant documents from
the issuing company and keep them in custody. They accepts the shares from the company
stores all of them in its vault.
3) Depository bank:- the overseas bank by accepting the issuing company’s shares and selling
representative certificates to investors. It is a subsidiary of a commercial bank located in the
country where the DR’s are to be issued.
4) A stock exchange:- they list the bank certificate for trading allowing investors to buy and sell
ADR/GDR units just as they would normal shares.
5) Lead manager:-they are merchant bankers for the issuing company. They help in smoothing the
DR issue process. The company has to chose a competent lead manager to managers usually
charge a fee as percent of the issue.
Advantage of ADRs/GDRs issue:
 For individuals, adrs/ GDRs are an easy and cost effective way to buy shares of a foreign
company. The individual are able to save considerable money and energy by trading in
ADR’s/GDRs, as it reduces administrative costs and avoids foreign taxex on each transaction
 It gives attractive pricing to the issuer.
 It provides diversification opportunity to the investors
 ADRs/GDRs can be listed on any of the overseas stock exchanges.
 Capital can be easily raised from foreign markets.
It helps enhancing the image of company globally.
EUROCURRENCY
https://www.investopedia.com/terms/e/eurocurrencymarket.asp#:~:text=The%20eurocurrency%20market
%20is%20the,mutual%20funds%2C%20and%20hedge%20funds.
Characteristics of Euro currency market:

1) The transactions in each currency take place outside the country of origin of that currency.
2) Euro-currency market is distinct from the foreign exchange market. It is a market for deposit and
for loans between banks and between banks and their customers. It is a market in which foreign
currencies are lent and borrowed whereas in the foreign exchange market, foreign currencies are
bought and sold.
3) The market is essentially unregulated because of which the deposits in this market are
unsecured.
4) Deposit are received only on short term basis most of the deposit are interbank, and they tend to
be very short term. This leads to concern about risk.
5) It is essentially a wholesale market dealing only is standardized deposit ammount. Leading in
this market is therefore done on a consortium basis.
6) The eurocurrency market exist for saving and time deposit rather than demand deposit. That is,
institution that create Eurodollar deposit currency in order to buy goods and services.
FACTORS RESPONSIBLE FOR GROWTH OF EURO- CURRENCY MARKETS:

The incentive to establish the Eurocurrency market came from regulation in the British and American
markets that added to the cost of doing business onshore. In Britain, the bank of England restricted the
use of sterling to finance foreign trade and external loans.
1) Less willingness to hold dollars in USA-based bank:-many economics were less willing to
hold deposit in dollars and they started putting their earnings in London banks.
2) Regulation ‘Q’: the regulation ‘Q’ of the federal reserve act which composed a ceiling on
interest rates that could be paid on deposit by banks in the US. This enable European banks to
attract US dollar deposits by offering better interest rates.
3) Regulation ‘M’: regulation ‘M’ of the federal reserve act which stipulated reserve to be
maintained against deposits accepted by banks in the US.
4) Insure deposit: the mandatory requirement on all banks in the US to insure deposits accepted
by them from the public. The euro currency market is unregulated which means eurobanks were
under no obligation to insure euro-currency deposits. This reduced their cost on deposits
5) The interest equalization tax: it was introduced by the US monetary authority in 1963 resulted
in increasing the effective cost of borrowing in the united states for non-resident entities.
6) The voluntary restraint program: it was introduced in the US in 1965 in terms of which,
borrowing in the US for financing international projects was restricted.
7) Full capital account convertibility: there had been full capital account convertibility adopted
by many developed nations, which allowed them to conduct transactions of local financial assets
into foreign financial asset freely.

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MODULE 3

Features of Currency Futures

Mentioned below are the key attributes of currency futures prices:

 Size: The sizes of contracts are all the same.

DIFFERENCE BETWEEN OPTION AND FUTURES

TYPES OF FOREING EXCHNAGE RISK AND MANAGING OF FOREIGN EXHANGE RISK

Meaning of depository receipts:

Different types of ADR programs:

1) IDR-Indian depository receipts:

Parties involved in ADR/GDR issue:

Characteristics of Euro currency market:

FACTORS RESPONSIBLE FOR GROWTH OF EURO- CURRENCY MARKETS:

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