Q&A: why would investors want to buy ADRs?

A: When a U.S. bank buys foreign stock shares, puts them in a trust and resells trust units, the shares become known as ADR (American Depository Receipts). ADRs allow foreign shares to be traded in the United States much like any other security. ie. reduced administration and duty costs on each transaction that would otherwise be levied.

Bonus Points

  • ADR represents the ownership interest in a foreign company's common stock. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.
  • ADRs do not eliminate the currency/fx and political risks (ie. is the government stable?)
  • The process is as follows: The shares of the foreign company are purchased and put in trust in a foreign branch of a New York bank. The bank, in turn, receives and can issue depository receipts to the American stockholders of the foreign firm.

Category: C++ Quant > Financial Markets

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