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. 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. 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 >>
  5. 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 >>
  6. 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 >>
Related Articles
  1. Options & Futures

    20 Investments: American Depository Receipt (ADR)

    What Is It? Introduced to the financial markets in 1927, an American Depository Receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign ...
  2. Investing Basics

    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.
  3. Bonds & Fixed Income

    An Introduction To Depositary Receipts

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

    Introduction To American Depository Receipts ADRs

    ADRs can open up a whole new world for investors. Find out what they are and how they work.
  5. Economics

    ADR Basics: Risks

    There are several factors that determine the value of the ADR beyond the performance of the company. Analyzing these foreign companies involves further scrutiny than merely looking at the fundamentals. ...
  6. Insurance

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  7. Investing

    How To Trade Foreign Stocks

    We weigh the major ways to trade foreign stocks for investors.
  8. Investing Basics

    Here's How To Tap International Markets (PBR, VALE)

    Access to foreign markets has grown a lot in recent years, allowing US market players to trade these bourses in real-time.
  9. Forex Education

    The 3 Biggest Risks Faced By International Investors

    Investing internationally is a great way to diversify your portfolio, but you need to know the risks.
  10. Mutual Funds & ETFs

    (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.
RELATED TERMS
  1. American Depositary Receipt - ADR

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

    An American depositary receipt (ADR) issued by a bank on behalf ...
  3. Y

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

    An American depositary receipt (ADR) issued by a depositary bank ...
  5. Average Daily Rate - ADR

    A metric widely used in the hospitality industry to indicate ...
  6. Asset Depreciation Range - ADR

    An elective accounting method established by the Internal Revenue ...
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center