Q:
Which of the following best describes American Depository Receipts (ADRs)?
a) An option to purchase a stated number of shares of a common stock at a stated price
b) Trade foreign securities in U.S. markets
c) Trade U.S. securities in foreign markets
d) Fixed income security portfolio managed by a corporate trustee
A:
The correct answer is b):
ADRs are used to trade foreign securities in the United States. Instead of buying shares of foreign companies in the overseas markets, investors can buy shares in the U.S. in the form of ADRs. This entitles the investor to capital gains/losses and dividends, but it does not eliminate currency risks.

MORE FAQS

  1. Why would an investor want to hold an American Depository Receipt rather than the underlying security?

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

  3. How are American Depository Receipts (ADRs) priced?

  4. What parties are involved in the creation of an American depositary receipt?

  5. How does a depository bank benefit from issuing an ADR for a foreign company for free?

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