Q1. What are the features of ADRs and GDRs?

Q1. What are the features of ADRs and GDRs? ADRs and GDRs A Depository Receipt (DR) is a versatile financial security that is traded on a local stock exchange but it represents a security that is issued by a foreign publicly listed company. Two of the most common types of DRs are the American Depository Receipt (ADR) and Global Depository Receipt (GDR). ADR is a security issued by a non-U.S. company and is traded on U.S. stock exchanges. ADRs are issued to offer investment methods that avoid the unwieldy laws applied to the non-citizens who buy shares on local exchanges. ADRs are listed on NYSE, AMEX or NASDAQ. Few advantages of ADRs are: · ADRs are easy and cost efficient methods to buy shares in foreign companies. · ADRs save money by reducing administration costs and avoiding foreign taxes on the transaction. GDRs were developed on the basis of ADRs and are listed on stock exchanges outside US. GDRs are traded globally instead of the original shares on exchanges. The objective of GDR is to enable investors to gain economic exposure to a planned company in developed markets. Features of GDRs are as follows: · GDR holders do not have a voting right. · It has less exchange risk as compared to foreign currency loan. · GDR investors may cancel his receipt by advising the depository. ADRs and GDRs are excellent means of investment for NRIs and foreign nationals who want to invest in India.

Q2. Explain FEMA and highlight the effect of FEMA on liberalisation. Foreign Exchange Management Act (FEMA), 1999 The foreign exchange activities in India are governed by Foreign Exchange Management Act (FEMA), 1999. FEMA came into effect in JUNE 2000 and its provisions are available on RBI’s website. FEMA replaced Foreign Exchange Regulation Act (FERA) which has outlived the objective. It was originally enacted for the conservation of the precious foreign exchange. The objectives of FEMA are: · To promote external trade through foreign exchange · Orderly development and maintenance of foreign exchange market in India Some highlights of FEMA FEMA regulates Indian foreign exchange market. It is applicable all over India and even to the branches, offices and agencies located outside India, if it belongs to a person who is a resident of India. Some highlights of FEMA are as follows: · A non-authorised person is prohibited from foreign exchange dealings. · If any person residing in India receives any Forex payment without a corresponding inward remittance, then the concerned person is deemed to have received payment from non-authorised person. · There are seven types of foreign accounts which are totally prohibited. They include transactions relating to lotteries, football, banned magazines and others. Any transactions relating to these are prohibited. · Resident of India (ROI) is entitled to own or hold or transfer any foreign security or immovable property situated outside India as per the FEMA rules. · Similar freedom is given to a resident who inherits foreign security or immovable property from a ROI. · A ROI is permitted to hold shares, securities and properties acquired by him when he was a resident of inherited such properties from a resident. · Certain prescribed limits are substantially revised upwards like the basic travel quota has been increased from the existing USD 3,000 to USD 5,000 per year. Effect of liberalisation The liberalisation of Indian investments in global financial market has increased the access to commercial borrowings by Indian corporates and participation of foreign investors in the stock market. The aim of FEMA is to simplify, consolidate and amend the law related to foreign exchange and facilitate external trade and payments. FEMA seeks to establish a more liberal and orderly regulatory framework for economic growth. Some liberalisation measures of FEMA are: · Current account transaction such as foreign trade, current business, short-term banking services, remittances for living expenses of parents, spouse and children residing abroad ,expenses in education, foreign travel and medical care of parents ,spouse and children has been liberalised. · Capital account transaction alters the assets or liabilities of persons resident in India, assets or liabilities in India of persons residing outside India. · Exports of goods and services. · Certain cases are exempted from realisation and repatriation cases and they are as follows: o Possession of foreign currencies or coins up to a limit specified by RBI. o Foreign currency account held and operated by person or group of persons up to a limit specified by RBI. o Foreign exchange acquired or received, or any income arising which is held outside India by any person in pursuance of a general or special permission granted by the RBI FEMA is more liberal but conformed to postulates of justice and fairness. It is prerequisite for promoting further economic liberalisation and growth. In this section we discussed about FEMA and its objectives, buyer’s/supplier’s credit and the effects of liberalisation.