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) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  2. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>
  3. What are the differences between global depositary receipts (GDRs) and American depositary ...

    A global depositary receipt (GDR) is a bank certificate issued in multiple countries for shares in a foreign company. The ... Read Full Answer >>
  4. What is the difference between a greenfield investment and a regular investment?

    A greenfield investment is a particular type of investment where an international company begins a new operation in a foreign ... Read Full Answer >>
  5. What are the benefits for a company investing in a greenfield investment?

    Advantages of greenfield investments include increased control, the ability to form marketing partnerships and the avoidance ... Read Full Answer >>
  6. Why did China designated certain territories as special administrative regions?

    The primary reason for the People's Republic of China designating two territories as special administrative regions, or SARs, ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Top 3 German Bonds ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and private bonds issued by Germany with different duration yields.
  2. Economics

    A Long Road to Full Diplomatic Relations with Cuba

    Over the past 50 years, the U.S. and Cuba have remained at odds, only recently to restore diplomatic ties. What does this mean?
  3. Economics

    How US Interest Rates Move the World Economy

    Because the US has the world's largest economy, fluctuations in America's interest rates affect much more than domestic growth
  4. Investing Basics

    What is the Sensex?

    The Sensex is the benchmark index for the Bombay Stock Exchange in India.
  5. Investing

    How Shackling Offshore Banks Will Impact You

    FATCA regulations have cast a wide net on offshore banking activities, and many innocent account holders might get caught in its tangle.
  6. Mutual Funds & ETFs

    Top 4 Diversified Emerging Market Mutual Funds

    Explore analysis of the top diversified emerging market mutual funds, and learn about their modern portfolio theory statistics, characteristics and suitability.
  7. Mutual Funds & ETFs

    Top 4 International Treasury Bond ETFs

    Learn about the top four international treasury bond funds that hold sovereign foreign bonds, which can be denominated in U.S. dollars and local currencies.
  8. Mutual Funds & ETFs

    Top 4 European Stock Mutual Funds

    Learn about four of the largest and most popular European stock mutual funds in the market, including options for active and passive investors.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total International Bond

    Learn about the Vanguard Total International Bond exchange-traded fund, which invests in investment-grade foreign, sovereign and corporate bonds.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Korea Capped

    Take an in-depth look at the iShares MSCI South Korea Capped exchange-traded fund, which is the largest and most secure South Korea-centric ETF.
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China ...
  2. Welfare Capitalism

    Definition of welfare capitalism.
  3. Foreign remittance

  4. Sponsored ADR

    An American depositary receipt (ADR) issued by a bank on behalf ...
  5. Depositary Receipt

    A negotiable financial instrument issued by a bank to represent ...
  6. Corporate Inversion

    Re-incorporating a company overseas in order to reduce the tax ...

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!