A:

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.

RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. Does a company's American depositary share equal one share of common stock?

    American depositary shares (ADS) come into play when a foreign company wants its shares to trade on a major American exchange. ... Read Answer >>
  4. How does a depository bank benefit from issuing an ADR for a foreign company for ...

    For domestic investors the benefits of increasing the portion of their portfolio that they invest in foreign companies is ... Read Answer >>
  5. Why would a company choose to use global depositary receipts (GDRs) for financing?

    Learn why a company might choose to utilize global depositary receipts for financing, along with the many other benefits ... Read Answer >>
Related Articles
  1. Investing

    Investing in Foreign Stocks: ADRs and GDRs

    Depositary Receipts are easy ways to invest in foreign stocks, regardless of what part of the world you live in.
  2. Investing

    An Introduction To Depositary Receipts

    Learn about a security that allows you to invest in a foreign company through your local exchange.
  3. Investing

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  4. Insights

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  5. Investing

    (EZU) iShares Eurozone ETF: Top 5 Holdings

    Learn about the iShares MSCI Eurozone ETF and its top five holdings, which include Anheuser Busch Inbev SA, Sanofi SA, Bayer AG and Siemens AG.
  6. Investing

    Go International With Foreign Index Funds

    As global trade continues to expand and the world's economies grow, spice up your portfolio with these exciting opportunities.
  7. Investing

    How U.S Investors Can Buy Nintendo Stock (NTDOY)

    Those who wish to buy stock in Nintendo due to the success of "Pokemon Go" can do so on U.S. exchanges. Find out how.
RELATED TERMS
  1. American Depositary Receipt - ADR

    A negotiable certificate issued by a U.S. bank representing a ...
  2. Y

    A letter that appears on a Nasdaq stock symbol specifying that ...
  3. Unsponsored ADR

    An American depositary receipt (ADR) issued by a depositary bank ...
  4. Depositary Receipt

    A negotiable financial instrument issued by a bank to represent ...
  5. SEC Form F-6EF

    A filing with the Securities and Exchange Commission (SEC), also ...
  6. Linkage

    Linkage occurs when an investor is able to purchase a security ...
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  6. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
Trading Center