ADR

ADR is the short form of American Depositary Receipt, which represents ownership in the shares of the non-US firm which trades in the United States financial markets.

Suppose you want to purchase the stock of a foreign company, one that is listed on the London Stock Exchange. You need to convert your dollars to pounds and then get a broker to purchase that stock for you.  When you have the broker sell the stock, you have to pay whatever taxes are required in the United Kingdom and then convert the pounds back to dollars. Or suppose you run a Scottish company which needs a large sum of money in order to enter Asian markets. You know that the United States provides more funds to business than any other country, so you want to sell stock in the United States.

To do so, you would have to go through the process of meeting all requirements in the United States and then finding an exchange on which you could list your company, translating your currency to dollars and converting all your accounting statements to dollars. In addition to these difficulties, certain countries have regulations limiting foreign ownership (for example China, South Korea, Taiwan and India) or controls on the movement of financial capital (example.., Malaysia from 1998 to 2001) that make owning stock in a company in these nations difficult for US investors. In the past these transactions were very difficult and so few US investors owed stock in foreign companies and few foreign business raised money in the United States. American Depository Receipts (ADR) allows easy access to non-US stocks for US investors.

American Depository Receipts is a stock which trades in the US however represents a particular number of shares in the foreign business or corporation.

Questionnaire:

• What is ADR?
• What is it main function?