AAA series: A day , An Abbreviation : ADRs

ADRs:
American Depository Receipts

Did you hear about the Indian ADRs like Infosys,Satyam,Tcs,ICICI Bank etc in the market reports and news ? What are these ADR's ? How are they different from stocks that we trade regularly ?

Continue reading below to find answers to the above.

ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation.

ADRs were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values.

ADRs were first introduced in 1927.

Two banks are generally involved in maintaining an ADR on a US exchange: an investment bank and a depositary bank.The investment bank purchases the foreign shares and offers them for sale in the US.The depositary bank handles the issuance and cancellation of ADRs certificates.The depositary bank sets the ratio of ADRs per home-country share. This ratio can be less than or greater than 1.

ADR's carry basically 3 levels of risks

1.Political Risk
2.Exchange Rate Risk
3.Inflationary Risk