CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions
An overseas depository holds 5,00,000 equity shares of an Indian company against GDRs. Each GDR represents 2 underlying shares. How many GDRs are outstanding?
There are 2,50,000 GDRs outstanding. Each GDR represents two shares, so the 5,00,000 underlying shares are divided by two. Multiplying by two instead would give 10,00,000, which wrongly inverts the conversion ratio between receipts and shares.
- A10,00,000
- B2,50,000Correct
- C5,00,000
- D1,25,000
Explanation
Number of GDRs equals underlying shares divided by the ratio: 5,00,000 / 2 = 2,50,000. Check: 2,50,000 x 2 = 5,00,000 shares. The figure 10,00,000 comes from wrongly multiplying by the ratio instead of dividing.
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