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American Depository Receipt (ADR)
An American Depository Receipt (ADR) is a financial instrument that allows investors in the United States to invest in foreign companies. An ADR is a certificate issued by a US bank that represents a specific number of shares in a foreign company. These shares are held by the bank in the foreign country and the ADR is traded on a US stock exchange, making it easier for US investors to buy and sell shares in the foreign company.
There are two types of ADRs: sponsored ADRs and unsponsored ADRs. Sponsored ADRs are issued with the cooperation of the foreign company, while unsponsored ADRs are issued without the cooperation of the foreign company.
ADRs provide several benefits to US investors. They allow investors to diversify their portfolios by investing in foreign companies without having to deal with foreign exchange rates and other complexities of investing directly in foreign markets. They also provide US investors with access to companies that may not be available in US markets, allowing them to take advantage of growth opportunities in foreign markets.
For foreign companies, issuing ADRs can provide access to a larger pool of investors in the US market. It can also help to increase the company’s visibility and credibility in the US market, potentially leading to increased investment and growth opportunities.
Investing in ADRs comes with risks, including the risk associated with investing in foreign markets, currency exchange rate risk, and the risk that the ADR may not accurately reflect the value of the underlying shares in the foreign company. Investors should carefully consider these risks before investing in ADRs.
An American Depositary Receipt (ADR) is a physical certificate evidencing ownership of American Depositary Shares (ADSs). The term is often used to refer to the ADSs themselves. It represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. The stock of many non-US companies trade on US stock exchanges through the use of ADRs. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross-currency transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies.
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