American Depository Receipt
By: Jitender

American Depository Receipt is an excellent way to buy shares of a foreign company in the US. American Depository Receipt is basically a negotiable certificate that is issued by the bank representing the foreign stock. American Depository Receipt was first used by JPMorgan in 1927, for the Selfridges&Co, a British retailer. There are so many reasons that make American Depository Receipt a viable option for investing in foreign stocks that are being traded at the US stock markets.

ADR lets the US investors to invest in US dollars irrespective of the country of the company. The holders of the ADRs get dividends in US dollars. These help the investors to avoid the hassles of investing in foreign currencies. Though the risks of conversion rates and related taxes are always there, it is still a better and most popular option amongst the US investors.

American Depository Receipt can represent the fraction of a share, a single share or multiple shares. So the US investors have the flexibility in investing, much in the same way in which they invest in stocks of the US based companies.

While issuing ADRs the depository banks undertake numerous responsibilities towards the investors as well as the company it represents in the US market. So, it is convenient to both of the parties, the investors and the companies to trade through American Depository Receipt.

There are different levels of ADRs,

Level I - This level represents the lowest sponsored shares that can be issued and majority of the American depositary receipt programs that are being currently issued are thorough the Level 1 program. This is the most convenient way for foreign company to issue ADR as it requires minimum reporting to the Securities and Exchange Commission (SEC) but the shares at this level can only be traded at the OTC market.

Level II – Though the process is more complicated in case of the Level II program but when a foreign company opts for this program, it can list the share at US markets including U.S. stock exchange. These exchanges include the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX).

Level III – The most complicated way of issuing American Depository Receipt, this level lets the foreign company to actually raise capital from the US market, instead of converting some shares to ADRs.

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American Depository Receipt gives you chance to gain from booming foreign markets

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