American Depositary Receipt (ADR)

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Definition of 'American Depositary Receipt (ADR)'

An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. bank that represents ownership of a foreign stock. ADRs are denominated in U.S. dollars and trade on U.S. stock exchanges. They are often used by foreign companies to raise capital in the United States.

There are several advantages to using ADRs. First, they make it easier for U.S. investors to trade foreign stocks. ADRs are listed on U.S. stock exchanges and trade in U.S. dollars, so U.S. investors do not have to worry about converting currencies. Second, ADRs provide investors with greater liquidity than trading foreign stocks directly. ADRs are more widely held and traded than foreign stocks, so it is easier to buy and sell them. Third, ADRs offer investors greater transparency than trading foreign stocks directly. ADRs are subject to the same regulations as U.S. stocks, so investors have access to more information about the companies that issue them.

There are also some disadvantages to using ADRs. First, ADRs can be more expensive than trading foreign stocks directly. ADRs typically have a higher commission than trading foreign stocks on a foreign exchange. Second, ADRs may not offer the same level of protection as trading foreign stocks directly. ADRs are issued by U.S. banks, which are subject to U.S. regulations. However, foreign companies are not subject to U.S. regulations, so there is a risk that they may not comply with U.S. laws.

Overall, ADRs are a good option for U.S. investors who want to invest in foreign stocks. ADRs offer several advantages over trading foreign stocks directly, including greater ease of trading, liquidity, and transparency. However, ADRs can be more expensive than trading foreign stocks directly and may not offer the same level of protection.

Here are some additional details about ADRs:

* ADRs are typically issued in bearer form, which means that the owner's name is not recorded on the certificate. This can make it difficult to track ownership of ADRs.
* ADRs are subject to U.S. securities laws. This means that they must be registered with the Securities and Exchange Commission (SEC) and that they must comply with the same disclosure requirements as U.S. stocks.
* ADRs are typically priced in U.S. dollars. However, some ADRs may be priced in other currencies.
* ADRs can be traded on U.S. stock exchanges or in the over-the-counter (OTC) market.
* ADRs are typically issued by large U.S. banks, such as Citigroup, JPMorgan Chase, and Bank of America.

If you are considering investing in ADRs, it is important to do your research and understand the risks involved. You should also consult with a financial advisor to make sure that ADRs are the right investment for you.

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