ADR Full Form | What is the full form of ADR
ADR Full Form - American Depository Receipt
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ADR
- ADR stands for American Depository Receipt. This term is used within the context of stock markets. It’s a receipt or certificate that represents shares of a foreign stock.
- It’s issued by a U.S. bank to an individual who is interested in buying shares of a foreign stock or non-US Company through U.S. stock exchange.
- ADR was introduced in 1927 to offer U.S. investors an easier way to buy stocks of foreign companies.
American Depository Share
- ADR is used and pays dividend in U.S. dollars which allows domestic investors to have shares of a foreign company without the effort of currency conversion.
- It 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).
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. ( NYSE , NASDAQ and AMEX) within the form of ADRs.
- Each receipt has a certain number of underlying shares (one or more) during a foreign corporation.
- The investors who want to buy the shares of a foreign company can purchase these receipts. So, ADRs are traded just like shares which may be purchased through the stock exchanges of the U.S.
ADR Benefits for Foreign Companies
- They gain access to capital within the U.S without the hassle of regulatory filings of the U.S. Securities and Exchange Commission (SEC).
- Their corporate visibility increases within the U.S.
- They can diversify their shareholder base.
- They can expand their share market and improve global liquidity.
ADR Benefits for Investors
- They can diversify their investment portfolio on a more global scale.
- They can exchange following the American conventions.
- They receive dividends payments in American dollars.
- They can clear ADRs through U.S. settlement systems.
- Trading related information is available for the investors.