With globalization dissolving borders, it only makes sense that we have the ability to invest in foreign entities. Many nations who are striving to become industrialized are undervalued compared to the levels they will eventually reach.
Many people, therefore, consider ADRs an undiscovered gem in the financial markets. Diversification does not stop at just investing in different types of stocks or bonds. By investing in different countries, you gain the potential to capitalize on emerging economies, which hopefully leads to more green in your pocket.
- ADR is an acronym for American depositary receipt.
- ADRs trade just like stocks but represent shares of a foreign company trading on a foreign stock exchange.
- ADR shares float on supply and demand, just like a regular stock.
- There are three types of ADRs - Level 1, Level 2 and Level 3. Levels 1 and 2 are listings in the U.S., while Level 3 ADRs are public offerings to investors.
- Remember that there are other risks associated with buying ADRs, including inflationary risk, political risk and exchange rate risk.
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