2.4 American Depositary Receipts (ADRs)
ADRs facilitate domestic trading of international equities while eliminating cross-border clearing complexities.
Key FINRA Exam Takeaways
- ADRs allow US investors to purchase shares of foreign companies on US stock exchanges in US dollars.
- Issued by US commercial banks that hold the actual foreign shares in custodian vaults abroad.
- Dividends are declared in foreign currency and converted to US dollars by the depository bank.
- Currency Risk: ADRs do NOT eliminate foreign exchange risk; if the foreign currency weakens, the ADR value declines.
Interactive Knowledge Checkpoint • Section 2.4
Although American Depositary Receipts (ADRs) are denominated and trade in US dollars, they are directly subject to which of the following risks?