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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

A listed Indian company wants to raise foreign currency funds by issuing bonds abroad that are convertible into its own equity shares at the option of the holder. Which instrument describes this route?

The instrument is a Foreign Currency Convertible Bond. It is issued abroad by an Indian company in foreign currency, pays interest like debt, and can be converted into the issuer's equity shares at the holder's option, unlike depository receipts or money market instruments.

  1. AForeign Currency Convertible Bond (FCCB)Correct
  2. BIndian Depository Receipt
  3. CCommercial paper
  4. DCertificate of deposit

Explanation

An FCCB is a bond issued by an Indian company in foreign currency, carrying interest like a debt instrument and convertible into shares at the holder's option. An Indian Depository Receipt is issued in India by a foreign company, so it is the reverse route. Commercial paper and certificates of deposit are short-term domestic money market instruments.

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