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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

A listed Indian company wants to raise foreign currency by issuing bonds that are denominated in a foreign currency, pay interest in that currency, and can be converted into the company's equity shares at the option of the holder. Which instrument is this?

The instrument is a Foreign Currency Convertible Bond. It is issued in foreign currency, pays interest and redemption in that currency, and can be converted into the issuer's equity shares at the holder's option, which distinguishes it from loans, Masala bonds and depository receipts.

  1. AForeign Currency Convertible BondCorrect
  2. BGlobal Depository Receipt without conversion rights
  3. CExternal Commercial Borrowing by way of a plain term loan
  4. DNon-convertible Masala bond

Explanation

A Foreign Currency Convertible Bond is a bond issued by an Indian company in foreign currency, with interest and redemption in foreign currency, and convertible into shares of the issuer at the holder's option. A GDR is a depository receipt, not a bond. A plain term loan and a Masala bond carry no conversion feature.

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