ADRs (American Depositary Receipts)
What It Is
ADRs are certificates issued by U.S. banks that represent shares of foreign companies, allowing them to trade on U.S. exchanges.
Why It Matters
They give U.S. investors easy access to international companies without dealing with foreign exchanges or currencies.
How It Works
- A U.S. bank holds foreign shares
- Issues ADRs representing those shares
- ADRs trade like regular U.S. stocks
- May represent one share, multiple shares, or fractions
Key Components
- Foreign company representation
- U.S. exchange listing
- Currency conversion
- Sponsored vs unsponsored ADRs
Example
Companies like Alibaba and Toyota trade in the U.S. through ADRs.
Key Takeaways
- ADRs simplify global investing.
- They reduce currency and administrative barriers.
- They expand access to international markets.