Onshore/Offshore Financial InstrumentsFinancial Management

Members

• Madhura Kadimdivan

• Sharanya Nair

• Amol Sagar

• Prajakta Mhatre

• Sojan Somu

FINANCIAL INSTRUMENT

• A document (such as a cheque, draft, bond, share, bill of exchange, futures or options contract) that has a monetary value or represents a legally enforceable (binding) agreement between two or more parties regarding a right to payment of money

• A real or virtual document representing a legal agreement involving some sort of monetary value.

• In today's financial marketplace, financial instruments can be classified generally as

• equity based, representing ownership of the asset, or

• debt based, representing a loan made by an investor to the owner of the asset. 

National Instruments

• Cheque : A written, dated and signed instrument that contains an unconditional order from the drawer that directs a bank to pay a definite sum of money to a payee

• Equity : Equities are an asset class within several offshore financial institutions and expat bank accounts.

• Debt : Document that serves as a legally enforceable evidence of a debt and the promise of its timely repayment . For eg bill of exchange , bonds , certificate of deposit

• Futures:- Commodities or securities contracted for delivery at a stated future date at a specified price. Such a contract (called futures contract) itself can also be traded.

• Bill of Exchange : A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (a sight bill) or on a fixed date , for payment of goods and/or services received

Financial Instruments held in offshore accounts

• Offshore bank accounts provide individuals seeking an alternative investment opportunity or different avenue of financial management to improve their financial planning options.

• Financial instruments held within expat bank accounts often include products that's value is based on market forces, or pre-determined contracts that offer lower interest rates and  costs.

• The potential benefits of offshore banking outweigh those of more restrictive banking regulation and policy. This is achievable via a range of products.

• CFDs

Contracts for difference such as currency pairs, equity swaps and similar financial instruments are in effect derivative financial securities.

These products provide traders an opportunity to capitalize on price movements without actually having to hold the underlying asset.

In some cases these CFDs are purchased using capital leveraging or margin. In other words, a credit account is used in addition to the primary fully funded offshore account.

• Funds

Funds come in many shapes and sizes, and are either directly managed by offshore banks, or traded with their services.

Bond funds, exchange traded funds, and mutual funds are just a few of the fund types that are held within expat bank accounts.

Additional funds such as hedge funds, money market funds and fixed income funds are examples of others.

These funds are either maintained independently through a trust established at an international bank, or managed with the assistance of financial service professional.

• OTCs

Over the counter securities trading services are available via select offshore financial institutions.

These include pink sheets, another term for stocks not traded on larger exchanges. Collateralized debt obligations are another type of OTC exchanged through offshore accounts.

Essentially, if it is not traded via a major formal exchange that is regulated by a particular organization, then financial instruments are considered OTCs.

• Equities

Equities are an asset class within several offshore financial institutions and expat bank accounts.

Moreover, stocks that are not over the counter can be traded via accounts at offshore banks.

This is because when the offshore bank has a headquarters in the domicile of residence, the trading networks are interlinked enabling offshore securities trading.

Stock options or stock derivatives, are also available via some offshore banks.

• CDs

Certificate of deposits are able to yield as high as eight percent or more at select offshore financial institutions.

Specific rates are determined based on deposit amount, location, term and applicable banking policy.

These rates are above and beyond some of the best international CD rates available, and this makes these negotiable instruments an attractive investment opportunity.

Additionally, offshore banks do not necessarily withhold interest income tax due to differences in regulatory requirements.

• Bonds

Due to the fact offshore accounts are located in foreign jurisdictions, they are not subject to the monetary decisions of other banks in larger jurisdictions.

It is for this reason, interest rates on loans from offshore banks are able to be more competitive.

For example, offshore bonds that cost less to underwrite are better able to offer higher yields to lenders or investors.

Similarly, just as loans are made, debt instruments such as international treasuries, corporate debentures and convertible bonds are also held or purchased within offshore accounts.

Global Depository Receipt

• A global depository receipt (GDR), also known as international depository receipt (IDR)

• is a certificate issued by a depository bank which purchases shares of foreign companies and deposits it on the account.

• They are the global equivalent of the original American depository receipts (ADR) on which they are based.

• GDRs represent ownership of an underlying number of shares of a foreign company and are commonly used to invest in companies from developing or emerging markets by investors in developed markets

Characteristics

• it is an unsecured security

• it may be converted into number of shares

• interest and redemption price is public in foreign agency

• it is listed and traded in the stock exchange

Foreign Currency Convertible Bond - FCCB

• A type of convertible bond issued in a currency different than the issuer's domestic currency.

• In other words, the money being raised by the issuing company is in the form of a foreign currency.

• A convertible bond is a mix between a debt and equity instrument.

• It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

Eurocommercial Paper

• A short term, unsecured loan issued by a corporation in a currency other than the one in which the corporation operates.

• Corporations issue euro commercial papers in order to tap into the international money markets for their financing. 

• Like other commercial papers, euro commercial papers are rarely for a term longer than a few months and they are usually issued at a discount.

• An example of a euro commercial paper is a British firm issuing debt in U.S. dollars to encourage investment from dollar investors in international money markets.