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Consider the following statements regarding Global Depository Receipts (GDRs):
  1. It is a foreign currency-denominated negotiable financial instrument.
  2. All the companies in India can get access to GDRs.
Which of the statements given above is/are correct?
  • a)
    1 only
  • b)
    2 only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements regarding Global Depository Receipts...
Tata Consumer Products recently said that it will delist its global depository receipts (GDRs) from the London Stock Exchange and Luxembourg Stock Exchange.
About Global Depository Receipts (GDRs)?
  • It is a foreign currency-denominated negotiable financial instrument issued by a depositary bank. 
  • GDRs are certificates issued by a depository bank, which purchases foreign company shares and deposits them in the account. 
  • GDRs are commonly used to raise capital from international investors through public stock offerings or private placement.
  • Purpose:
  • Indian companies can only get their shares listed on foreign exchanges through Global Depository Receipts (GDR).
  • GDRs help Indian companies get foreign funds and gain access to international capital. 
  • The depository bank is the intermediary that acts as the custodian of the shares issued by the Indian company.
  • The depository bank can convert GDRs into shares and trade them on the domestic stock exchanges.
  • GDRs are instruments denominated in foreign currencies. The shares are denominated in the deposit receipt issuer's local currency.
  • The value of a GDR depends on the value of the underlying share.
  • GDRs are issued to investors throughout the country since they can be denominated as multiple forms of freely convertible currency.
  • Only companies with a three-year sound financial record can get access to GDRs.
  • Thus, Indian companies should get clearance from the Ministry of Finance and Foreign Investment Promotion Board (FIPB) to obtain GDRs.
Hence only statement 1 is correct.
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