An Indian Company can raise finance from the American investors by issue of which of the following financial instrument ?

The correct answer is - American Depository Receipts (ADRs)

Key Points

• American Depository Receipts (ADRs)
  • ADRs are financial instruments issued by a non-American company but listed on US stock exchanges.
  • They allow Indian companies to raise capital from American investors without directly listing their shares on US exchanges.
  • ADRs are denominated in US Dollars, making them accessible and convenient for US-based investors.
  • ADRs are handled by US banks that act as depositories and issue receipts representing a specified number of shares in the foreign company.
  • They provide an efficient mechanism for Indian companies to access global equity markets and attract investments from the US.

Additional Information

• Global Depository Receipts (GDRs)
  • Similar to ADRs, GDRs are issued by non-US companies to raise funds in the global market and are listed on international stock exchanges outside the US.
  • While ADRs target US investors, GDRs are aimed at European and other international investors.
• External Commercial Borrowings (ECBs)
  • ECBs refer to loans or borrowings by Indian companies from foreign lenders, such as banks or financial institutions, rather than equity instruments.
  • They are used for funding infrastructure projects, capital expansion, and other large-scale investments.
• Promissory Notes
  • Promissory notes are legal financial instruments where one party promises to pay a certain amount to another party, but they are not used for equity fundraising.
  • They are commonly used for short-term debt or private transactions.
• Comparison Between ADRs and GDRs
  • ADRs: Issued for the US market and denominated in US Dollars.
  • GDRs: Issued for markets outside the US, often denominated in Euros or other foreign currencies.