In this video, you will learn everything you need to know about American depositary receipts.
#americandepositaryreceipts #adr #wallstreetmojo #foreigncompany #stockmarket
Chapters:
00:00 - Introduction
00:22 - What are American depositary receipts?
01:29 - Types of ADRs
02:21 - Advantages of ADRs
03:03 - Disadvantages of ADRs
What are American depositary receipts?
An American depositary receipt allows investors in the US to purchase shares of companies situated and listed on stock exchanges of other countries.
J.P. Morgan was the first to create an ADR in 1927, in which they enabled Americans to invest in a British company, Selfridges.
Currently, the US stock exchanges have thousands of ADRs traded representing various companies from various countries.
(Explained in detail in the video)
Types of ADRs
Now that you’ve understood what an ADR is, you should know that there are mainly 2 types of ADRs, sponsored ADRs and unsponsored ADRs.
In sponsored ADRs, the banks issuing the ADR, and the company whose ADR is being issued, have a legal relationship.
In an unsponsored ADR, the bank and the company do not have any legal relationship.
(Explained in detail in the video)
Advantages of ADRs
When it comes to ADRs, both the company that issues the ADR and the investors that purchase the ADR can benefit a lot.
It allows companies to access capital from investors in other countries, and the ADRs can also be used during mergers or acquisitions.
For an investor, it allows them to own shares of foreign companies, and it also helps them diversify their portfolios.
Disadvantages of ADRs
Firstly, unsponsored ADRs may not comply with SEC rules. Hence it may be safe to purchase such ADRs.
Secondly, ADRs may not be available for every foreign company. Hence investors may not get lots of options.
Finally, investors may be taxed double on the dividends they receive through ADRs if there are no proper tax laws to govern such arrangements.
This was all about American depositary receipts. We regularly upload videos on such topics, so make sure you subscribe to the channel. Also, don’t forget to like the video.
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