The global sourcing of capital refers to obtaining financial resources from debt, equity, money or capital markets. Amongst these, debt refers to those financing sources which provide financing opportunities for both short and long terms. Equity, on the other hand, refers to obtaining finance for a business through issuance of stocks in local and / or international markets.
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Money markets refer to those financial and lending institutions from which a business can acquire finance for short term and in a relatively quick manner. On the other hand, capital markets are providers of finance for longer terms. The need for global sourcing of capital arises due to the fact that businesses are always in search of raising capital with the most suitable or lowest possible cost (Eiteman, Stonehill, & Moffett, 2010; Arnold & Kumar, 2008).
Systematic Risk, Unsystematic Risk and Beta
Systematic risk refers to the risk related to the market which cannot be diversified by the investor. It is the uncertainty associated with the market, as for instance, volatility. Investors who invest in stocks of public enterprises often face this risk in the form of fluctuations in prices of stocks on a daily basis (Kevin, 2009; Madura, 2009).
On the other hand, unsystematic risk is a particular risk, which can be diversified by the investor. This risk is characteristically related to the sector or public enterprise in which an investor has made investments. This risk is not driven by market forces; in fact, it can occur or arise suddenly. It is possible to manage or contain unsystematic risk by way of diversifying investment portfolio (Madura, 2009; Arnold & Kumar, 2008).
Beta is a determinant of systematic risk associated with a stock or investment portfolio in contrast to the segment, sector, industry or market to which that stock or portfolio belongs. In addition to this, it is also considered in evaluating the risk associated with a stock in comparison with others.
Thus, investors, who have invested in public enterprises’ stocks, beta holds a significant importance in evaluating the risk involved in the stock or investment portfolio they are planning to or have already invested (Eiteman, Stonehill, & Moffett, 2010; Arnold & Kumar, 2008).
American Depository Receipts (ADRs) and Global Depository Receipts (GDRs)
American Depository Receipts (ADRs) are considered as negotiable instruments which act as a security for corporate entities not established in the United States, but are listed on the US stock markets (Eiteman, Stonehill, & Moffett, 2010).
Global Depository Receipts (GDRs) are those certificates which are issued by a depository bank. The bank issues these certificates against stocks of business entities which are deposited in the depository bank’s account (Eiteman, Stonehill, & Moffett, 2010).
The main difference between the two is that ADRs are required for trading in the US stock markets by corporate entities which are not based in the US. On the other hand, GDRs are required for trading in any foreign country’s stock market by any corporate entity which is not based in that country (Eiteman, Stonehill, & Moffett, 2010; Arnold & Kumar, 2008).
Cross listing refers to the listing of stocks by a business entity in a stock market, which is other than the stock market where that business entity is originally based. In order to get its stocks cross listed, a corporate entity is required to fulfil the requirements of the exchange where it is planning to cross list (Arnold & Kumar, 2008; Madura, 2009).
The main benefit, which can be attained by way of cross listing the stocks, is that they are traded at the same time in different parts of the world in different time zones and currency denomination, thus enabling corporate entities to improve their liquidity position and enhance the ability to generate capital. In order to cross list stocks in different markets, GDRs and ADRs are used by corporate entities all over the world (Madura, 2009; Kevin, 2009; Eiteman, Stonehill, & Moffett, 2010).
Difference between Eurodollars and Euro Notes
The Eurodollar refers to deposits denominated in US dollars outside the United States, which in turn enable the depositors to avoid the impact or influence of any regulations relating to deposits by the Federal Reserve Bank (Eiteman, Stonehill, & Moffett, 2010).
Euro notes are legal tenders which can be used while doing any transaction in Euro zone. The European Central Bank (ECB) is responsible for the supply of these notes in the market and also looking after the monetary policy and market conditions to ensure stability in price (Eiteman, Stonehill, & Moffett, 2010).
Arnold, G., & Kumar, M. (2008). Corporate Financial Management. New Delhi: Pearson Education India.
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Eiteman, D., Stonehill, A., & Moffett, M. (2010). Multinational Business Finance. Upper Saddle River: Prentice Hall.
Kevin, S. (2009). Fundamentals Of International Financial Management. New Delhi: PHI Learning Private Limited.
Madura, J. (2009). International Financial Management (10th ed.). Mason: Cengage Learning.