Read the given below two statements and mark the correct answer.
Assertion (A): Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period.
Reason (R) : A holder of FCCB has the option of either converting them into equity shares at any rate, or retaining the bonds.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Assertion (A) is true but Reason (R) is False.
Assertion (A): Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. THIS IS TRUE.
Reason (R) : A holder of FCCB has the option of either converting them into equity shares at any rate, or retaining the bonds. THIS IS FALSE. Holder can convert at a predetermined rate not any rate.
Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. Thus, a holder of FCCB has the option of either converting them into equity shares at a predetermined price or exchange rate, or retaining the bonds. The FCCB’s are issued in a foreign currency and carry a fixed interest rate which is lower than the rate of any other similar non-convertible debt instrument. FCCB’s are listed and traded in foreign stock exchanges. FCCB’s are very similar to the convertible debentures issued in India.