What is an American Depositary Receipt (ADR)?
Many investors want their portfolios to be diversified in order to minimize overall risk. In order to diversify, an investor may wish to invest in foreign markets. There is major growth potential in emerging markets. However, investing in foreign markets can be risky, so many investors choose to invest through mutual funds. American Depositary Receipts (ADRs) are another way in which investors can invest in foreign companies without having to worry about unfamiliar market practices, currency conversion, tax laws, and a general lack of company information. According to the Securities and Exchange Commission (SEC), the stocks of most foreign companies that trade in the U.S. markets are traded as ADRs and are issued by U.S. depositary banks. Each ADR is essentially a receipt that represents one or more shares or fractions of shares of a foreign stock. One advantage of ADRs is that an investor is still trading on the U.S. market. Therefore, all trade transactions are in U.S. dollars. The d
An American Depositary Receipt (commonly referred to as an ADR) is a USA dollar-denominated negotiable certificate traded on a USA stock exchange that represents ownership of a specific number shares in a non-USA company. ADRs make it easier for Americans to invest in foreign companies since price and financial information is presented in USA dollars, transaction costs are lower, and dividend distributions arrive more quickly. To avoid arbitrage there is always a direct correlation between the price of the share in its home country and the price of the ADR in the USA depending on the number of shares represented by the ADR and the exchange rate. Slight variations will occur because of differing transaction costs (for the purchases and the currency exchanges) and tax structures. For example, Coles Myer is an Australian company with the symbol CML in Australia and in the USA there is a Coles Myer ADR with the symbol CM. Each ADR represents 8 Australian shares. In October 2005 the price f
An ADR is a negotiable U.S. certificate representing ownership of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. Also, the dividends are paid to investor in U.S.dollars. ADRs were specifically designed to facilitate the purchase, holding and sale of non-U.S. securities by U.S. investor, and to provide a corporate finance vehicle for non-U.S. companies. What are the benefits of ADRs to US investors? US investors generally prefer to purchase ADRs rather than ordinary shares in the issuer’s home market because ADRs trade, clear and settle according to US market conventions. One of ADRs’ top advantages is the facilitated diversification into foreign securities. ADRs also allow easy comparison to securities of similar companies as well as access to price and trading information, if listed. ADR holders also appreciate prompt dividend payments and receiving corporate action notifications. What types of companies issue ADRs? ADRs iss
