American depositary receipts (ADRs) were developed to give investors an easier way to invest in foreign companies. An ADR is a financial product issued by U.S. depositary banks and traded on U.S.stock exchanges such as the NYSE and the Nasdaq. Since each ADR represents one or more shares of a foreign stock, or a fraction of a share, when you purchase an ADR, you are essentially purchasing shares of a foreign company.

The primary advantage of trading in ADRs is that they reduce the hassle of purchasing stocks in foreign countries with uncommon types of currency. However, although ADRs are traded in U.S. dollars on local exchanges, they are not protected from the political and exchange-rate risk that is prevalent in the home country of the company purchased.

Initially, foreign companies used ADRs to increase their exposure within the North American market. More recently, some companies have decided to delist their ADRs from <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /?>U.S. exchanges for a variety of reasons. Some have delisted their ADRs based on corporate decisions that have reduced the amount of business done within the U.S. Decisions such as these can be made based on changing economic conditions within the U.S. and foreign markets. For other foreign companies, the ADRs represented an extremely small portion of the equity that they had issued and these ADRs had very low trading volumes. These firms also found that U.S. residents owned primarily ordinary shares within the company, rather than ADRs.

When a firm decides to delist an ADR program, investors holding the ADRs are always reimbursed for what they own. Usually, investors are allowed to exchange their ADRs for ordinary shares of the company. Investors are also given the opportunity to tender their ADRs for cash, less fees and expenses.

To learn more, see American Depositary Receipt Basics, What Are Depositary Receipts? and The Dirt On Delisting.

  1. How are American Depository Receipts (ADRs) exchanged?

    Learn specifics about American depositary receipts, including how they are exchanged and some of their advantages and disadvantages. Read Answer >>
  2. How are American Depository Receipts (ADRs) priced?

    Understand what American depositary receipts are and how they work, including how the price of ADRs is determined by the ... Read Answer >>
  3. What factors must a company consider before establishing an American Depository Receipt ...

    Learn which factors a foreign company must consider before establishing an American Depository Receipt, or ADR, program in ... Read Answer >>
  4. What parties are involved in the creation of an American depositary receipt?

    An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number ... Read Answer >>
  5. Is there a difference between ADR and ADS?

    American depositary receipts (ADRs) allow foreign equities to be traded on U.S. stock exchanges; in fact, this is how the ... Read Answer >>
  6. Why would an investor want to hold an American Depository Receipt rather than the ...

    Learn about the advantages for investors of using American Depositary Receipts instead of investing directly in the underlying ... Read Answer >>
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