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Consider the following:
(1) Foreign currency convertible bonds
(2) Foreign institutional investment with certain conditions
(3) Global depository receipts
(4) Non-resident external deposits
(1) Foreign currency convertible bonds
(2) Foreign institutional investment with certain conditions
(3) Global depository receipts
(4) Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
- a)1, 2 and 3
- b)3 only
- c)2 and 4
- d)1 and 4
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following:(1) Foreign currency convertible bonds(2) Forei...
Foreign Currency Convertible Bonds (FCCB) means a bond issued by an Indian company in foreign currency and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company, either in whole or in part. FCCBs represent a debt obligation of the corporate. Investors have the option to redeem; or to convert them into underlying local shares or global depository receipts. If investors prefer to hold the FCCBs until redemption date, the corporate has to redeem the FCCBs on redemption date. Dilution would take place as and when debt is converted into equity. Since these bonds are convertible in to equity shares over a period of time as provided in the instrument, therefore they are covered under FDI policy & counted towards FDI. [If they are redeemed they count as ECB & a debt obligation, only on converting into equity it is counted towards FDI]. So, 1 is correct.
FII with certain conditions - According to IMF and OECD definitions, the acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized as foreign direct investment (FDI).In India, as per SEBI (FPI regulations), 2019, a particular FII is allowed to invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be construed as FDI. So, 2 is correct.
Global Depository Receipt (GDR) - Global Depository Receipts means any instrument issued in the form of depository receipt or certificate created by the oversees depository bank outside India and issued to non-resident investors against underlying shares or foreign currency convertible bonds of issuing company. GDRs are equity representing share-holders funds, foreign investment in the form of equity shares issued outside India by a Depository Bank, on behalf of an Indian company which is covered under the FDI policy. GDR proceeds are reckoned as Foreign Direct Investment. So, 3 is correct.
Non-resident external deposits - NRI investments that are repatriable are considered FDI while nonrepatriable
investments are considered domestic investment. So, 4 is not correct
investments are considered domestic investment. So, 4 is not correct
Therefore, the correct answer is (a).
Most Upvoted Answer
Consider the following:(1) Foreign currency convertible bonds(2) Forei...
Foreign Direct Investment and its components:
Foreign Direct Investment (FDI) refers to an investment made by a foreign entity in the business operations of a domestic company. The FDI is a critical component of a country's economic growth and development. The different components of FDI are as follows:
1. Foreign currency convertible bonds (FCCBs):
FCCBs are a type of bond issued by a company in a foreign currency, which can be converted into equity shares of the same company at a later stage. FCCBs are a popular way for companies to raise funds in foreign currencies, and they are often used to finance expansion plans. FCCBs can be included in FDI.
2. Foreign institutional investment (FII) with certain conditions:
FIIs are institutional investors, such as mutual funds, pension funds, and hedge funds, that invest in the financial markets of a foreign country. FIIs can invest in stocks, bonds, and other securities of a foreign country. However, the investment is subject to certain conditions, such as limits on the amount of investment and the sectors in which they can invest. FIIs can be included in FDI.
3. Global Depository Receipts (GDRs):
GDRs are financial instruments issued by a company in a foreign country that represents ownership of shares in that company. GDRs are traded on foreign stock exchanges, and they allow investors to invest in a foreign company without having to hold the underlying shares directly. GDRs can be included in FDI.
4. Non-resident external deposits (NREs):
NREs are deposits made by non-residents in banks located in India. NREs can be in the form of savings accounts, fixed deposits, or recurring deposits. The interest earned on NREs is tax-free in India, and the funds can be repatriated to the foreign country. NREs cannot be included in FDI.
Conclusion:
Based on the above explanation, we can conclude that foreign currency convertible bonds, foreign institutional investment with certain conditions, and global depository receipts can be included in Foreign Direct Investments.
Foreign Direct Investment (FDI) refers to an investment made by a foreign entity in the business operations of a domestic company. The FDI is a critical component of a country's economic growth and development. The different components of FDI are as follows:
1. Foreign currency convertible bonds (FCCBs):
FCCBs are a type of bond issued by a company in a foreign currency, which can be converted into equity shares of the same company at a later stage. FCCBs are a popular way for companies to raise funds in foreign currencies, and they are often used to finance expansion plans. FCCBs can be included in FDI.
2. Foreign institutional investment (FII) with certain conditions:
FIIs are institutional investors, such as mutual funds, pension funds, and hedge funds, that invest in the financial markets of a foreign country. FIIs can invest in stocks, bonds, and other securities of a foreign country. However, the investment is subject to certain conditions, such as limits on the amount of investment and the sectors in which they can invest. FIIs can be included in FDI.
3. Global Depository Receipts (GDRs):
GDRs are financial instruments issued by a company in a foreign country that represents ownership of shares in that company. GDRs are traded on foreign stock exchanges, and they allow investors to invest in a foreign company without having to hold the underlying shares directly. GDRs can be included in FDI.
4. Non-resident external deposits (NREs):
NREs are deposits made by non-residents in banks located in India. NREs can be in the form of savings accounts, fixed deposits, or recurring deposits. The interest earned on NREs is tax-free in India, and the funds can be repatriated to the foreign country. NREs cannot be included in FDI.
Conclusion:
Based on the above explanation, we can conclude that foreign currency convertible bonds, foreign institutional investment with certain conditions, and global depository receipts can be included in Foreign Direct Investments.
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Community Answer
Consider the following:(1) Foreign currency convertible bonds(2) Forei...
Foreign Currency Convertible Bonds (FCCB) means a bond issued by an Indian company in foreign currency and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company, either in whole or in part. FCCBs represent a debt obligation of the corporate. Investors have the option to redeem; or to convert them into underlying local shares or global depository receipts. If investors prefer to hold the FCCBs until redemption date, the corporate has to redeem the FCCBs on redemption date. Dilution would take place as and when debt is converted into equity. Since these bonds are convertible in to equity shares over a period of time as provided in the instrument, therefore they are covered under FDI policy & counted towards FDI. [If they are redeemed they count as ECB & a debt obligation, only on converting into equity it is counted towards FDI]. So, 1 is correct.
FII with certain conditions - According to IMF and OECD definitions, the acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by non-resident investors makes it eligible to be categorized as foreign direct investment (FDI).In India, as per SEBI (FPI regulations), 2019, a particular FII is allowed to invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be construed as FDI. So, 2 is correct.
Global Depository Receipt (GDR) - Global Depository Receipts means any instrument issued in the form of depository receipt or certificate created by the oversees depository bank outside India and issued to non-resident investors against underlying shares or foreign currency convertible bonds of issuing company. GDRs are equity representing share-holders funds, foreign investment in the form of equity shares issued outside India by a Depository Bank, on behalf of an Indian company which is covered under the FDI policy. GDR proceeds are reckoned as Foreign Direct Investment. So, 3 is correct.
Non-resident external deposits - NRI investments that are repatriable are considered FDI while nonrepatriable
investments are considered domestic investment. So, 4 is not correct
investments are considered domestic investment. So, 4 is not correct
Therefore, the correct answer is (a).
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Consider the following:(1) Foreign currency convertible bonds(2) Foreign institutional investment with certain conditions(3) Global depository receipts(4) Non-resident external depositsWhich of the above can be included in Foreign Direct Investments?a)1, 2 and 3b)3 onlyc)2 and 4d)1 and 4Correct answer is option 'A'. Can you explain this answer?
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