What Are American Depositary Receipts? The investment generally known as ADR stands for American Depositary Receipts, which is really a tool utilized to produce it simpler for investors to invest in foreign markets. As an alternative of having to find a broker with capabilities in the foreign markets where the securities trade, an investor can just receive ADR’s from a depositary bank that collects the foreign company’s shares.
These ADR’s might be then represent shares in that foreign market. There are numerous positive aspects to employing ADR’s that we have talked about in class including the liquidity of those assets. Because the entire approach of investing in foreign markets has turn into less difficult, the market has turn into far far more liquid. The annual dollar volume of ADR’s has increased from $75 billion dollars in 1990 to $550 billion in 2002. As an alternative of getting to various brokers and red tape to sell foreign investment we are able to just trade ADR’s.
As technologies advances it has turn out to be simpler to invest in foreign companies and we are able to see this by way of using depositary receipts. Not merely are depositary receipts issued in America but they are also issued in other countries also such as Euro DR’s, Singapore DR’s and China DR’s. Inside the Wall Street Journal on 2/24/06 there is an article, “Bank of Communications Seeks Listing” where we can see that Hong Kong-listed Financial institution of Communications Co. has gained approval to supply shares on China’s stock exchange and are prepared to give China depositary receipts (CDR’s). By issuing CDR’s, the financial institution is much better in a position to sell shares to foreign investors.
For much more details on American Depositary Receipts, attempt checking out some of the Wall Street Journal articles in their online database. It is a great resource. I’d also try checking out several of the other articles you could possibly locate in a google search.
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