Looking for a way to invest in specific foreign companies without learning all the intricacies of other countries’ stock markets? You may want to consider American depositary receipts (ADRs).
ADRs are the form in which foreign stocks trade on U.S. stock exchanges. An ADR is a negotiable certificate issued by a U.S. bank (the depositary), representing shares of a foreign stock. The original foreign stock certificates are owned by the bank and held in the issuer’s country. Each ADR can represent a multiple or fraction of the original foreign stock, which is a ratio set by the depositary so the ADR’s price falls within a range considered typical for U.S. stocks.
For an investor, ADRs can offer advantages over purchasing individual stocks on foreign stock exchanges:
Keep in mind that you are still investing in a foreign equity. In addition to the risks associated with domestic investing, international investing has unique risks, such as currency fluctuations, political and social changes, and greater share price volatility.
Before investing in ADRs, consider the following: