What is the full form of ADR?

The full form of ADR is an American Depositary Receipt. ADRs are negotiable documents issued by U.S. depositary banks that frequently represent a certain percentage of the shares of stock of a foreign company. The ADR trades on US stock exchanges similarly to any domestic stock.

ADRs allow American investors to purchase shares in overseas companies that they otherwise couldn’t. International businesses frequently gain from ADRs because they enable them to attract American investors and cash without going through the hassle and expense of being listed on the New York Stock Exchange.

How does an American Depositary Receipt work?

• Shares of a foreign company held and issued by a US bank are known as ADRs.
• The American banks buy shares of a foreign company and then sell those shares as ADRs on American stock exchanges (NASDAQ, NYSE & AMEX).
• Every receipt contains some of the foreign company’s underlying equity.

ADR profits to Investors

• They will diversify their investment holdings to include more global investments.
• They will trade under the American Conventions.
• They receive payment in US dollars for distributions.
• ADRs will be resolved under American mediation procedures.
• Investors have access to information about trade that is relevant.

ADR profits for Foreign Corporation

• They may get finance in the US without dealing with the burden of SEC regulatory filings (Securities and Exchange Commission).
• Business exposure is increasing in the US.
• They will increase the number of shareholders in it.
• They will expand the stock market and increase global liquidity.