1. ADR Basics: Introduction
  2. ADR Basics: What Is An ADR?
  3. ADR Basics: Determining Price
  4. ADR Basics: Risks
  5. ADR Basics: Conclusion

With today’s rapid globalization, it makes sense that investors want the ability to invest in foreign entities, and ADRs provide a relatively easy way to make that happen. U.S. investors may prefer to invest in ADRs instead of ordinary shares in the foreign market since ADRs trade, clear and settle in the U.S., according to U.S. market conventions.

Many emerging economies and nations that are striving to become industrialized are undervalued compared to the levels they will eventually reach – which can create opportunities for investors. ADRs have been considered an undiscovered gem in the financial markets: They trade like stocks on U.S. stock exchanges and offer easy access to foreign markets, which can help investors diversify their portfolios and provide the potential to capitalize on emerging economies. 

 To recap:

  • 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 I, Level II and Level III. Levels I and II are listings in the U.S., while Level III ADRs are public offerings to investors.
  • Remember that there are other risks associated with buying ADRs, including inflation riskpolitical risk and exchange rate risk.

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