What is ADR?

ADRs are a form of equity security that was created specifically to simplify foreign investing for American investors. An ADR is issued by an American bank or broker. It represents one or more shares of foreign-company stock held by that bank in the home stock market of the foreign company.

An American depositary receipt is a certificate issued by a U.S. bank that represents shares in foreign stock. These certificates trade on American stock exchanges. ADRs and their dividends are priced in U.S. dollars. ADRs represent an easy, liquid way for U.S. investors to own foreign stocks

Because ADRs are issued by non-US companies, they entail special risks inherent to all foreign investments. These include: Exchange rate risk—the risk that the currency in the issuing company's country will drop relative to the US dollar.

ADRs provide the US investors with ability to trade in foreign companies shares. ADR makes it easier and convenient for the domestic investors in US to trade in foreign companies shares. ADR provides the investors an opportunity to diversify their portfolio by investing in companies which are not located in America.

KEY TAKEAWAYS

An American depositary receipt is a certificate issued by a U.S. bank that represents shares in foreign stock.

These certificates trade on American stock exchanges.

ADRs and their dividends are priced in U.S. dollars.

ADRs represent an easy, liquid way for U.S. investors to own foreign stocks.

These investments may open investors up to double taxation and there are a limited number of options available.