1.7 American Depository Receipts (ADRs)

Question 1

American depository receipts (ADRs)

Answer 1

Receipts issued by a US bank that represent shares of a foreign stock.

Traded in U. S. Dollars

Allowing American investors to buy and sell for insecurities within the safety of the US stock markets

Question 2

Currency risk

Answer 2

American depository receipts are subject to currency risk.

Currency risk affects foreign investments and is the risk that the US dollar strengthens against the foreign currency the value of the foreign investment will decline for the US investor

U.S. dollar goes down = the price of the ADR increases

U.S. dollar goes up = the price of the ADR decreases

Question 3

Custodian Banks

Answer 3

A branch of the US depository bank. The depository bank deposits the purchased shares in this bank (custodian bank) located in the issuers country