What is an American Depositary Receipt?

Question

What is an American Depositary Receipt (ADR), and how does it allow U.S. investors to invest in shares of foreign companies? I’d like to understand how ADRs work and what investors should consider.

William · Answer

An American Depositary Receipt is a U.S.-traded certificate representing shares in a foreign company. Banks hold the actual foreign shares, and you buy the ADR to gain exposure to that stock without dealing with complex international brokerage requirements. They simplify currency conversion and settlement for American investors, making it easier to diversify globally while keeping everything within your standard U.S. brokerage account.

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