Categories: BusinessFinance

What Is The Full Form of ADR?

The full form of ADR is an American Depository Receipt.  It is a receipt or certificate that represents shares of a foreign stock.  Also a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares or as little as one share-investment in a foreign company’s stock. 

ADR was introduced in 1927 to offer U.S. investors an easier way to buy stocks of foreign companies. The ADR trades on markets in the U.S. as any stock would trade.

ADR is issued and pays dividends in U.S. dollars which allows domestic investors to own shares of a foreign company without the hassle of currency conversion. This also helps foreign companies attract American investors by trading on U.S. stock exchanges. The shares represented by an ADR are called American depositary shares (ADSs).

The Full Form of ADR is : American Depository Receipt

ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad. Foreign firms also benefit from ADRs, as they make it easier to attract American investors and capital—without the hassle and expense of listing themselves on U.S. stock exchanges. 

How does it work?

ADRs are shares of a foreign company owned and issued by a U.S. Bank. The U.S. banks buy the shares of a foreign company then sell these shares on the stock exchanges of the U.S. in the form of ADRs.

Each receipt features a certain number of underlying shares (one or more) during a foreign corporation. The investors who want to buy the shares of a far off company can purchase these receipts. So, ADRs are traded a bit like shares which will be purchased through the stock exchanges of the U.S.

ADR Benefits for Foreign Companies:

  • They can diversify their shareholder base
  • Their corporate visibility increases in the U.S.
  • They gain access to capital in the U.S without the hassle of regulatory filings of the U.S. Securities and Exchange Commission (SEC).
  • They can expand their share market and improve global liquidity

ADR Benefits for Investors:

  • They can clear ADRs through U.S. settlement systems.
  • They can diversify their investment portfolio on a more global scale.
  • They receive dividends payments in American dollars.
  • They can exchange following the American conventions.
  • Trading related information is available for investors.
Sambit Kumar

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