American Depositary Receipts (ADRs)
Negotiable certificates, issued by U.S. banks and traded in U.S. markets in dollars, that represent shares of a foreign company held on deposit overseas — the standard way U.S. investors buy foreign equities.
Exam items lean on one comparison: an ADR lets a U.S. investor own a foreign company without trading on an overseas exchange in foreign currency, yet the holder still carries exchange-rate (currency) risk. The classic “tell” is a question asking which risk an ADR does NOT eliminate — the answer is currency risk, because the underlying dividend is paid abroad in the foreign currency and converted to dollars by the depositary, so a weaker foreign currency shrinks the payout. Watch the rights trap: ADR holders typically forgo preemptive rights and have limited (or no) voting, so an “all of the following are rights of ADR holders” question excludes voting/preemptive.
Distinguish ADRs from plain common stock, which carries voting and (if the charter grants them) preemptive rights, plus dividends when declared — an ADR is a receipt for shares on deposit, not direct registered ownership. Versus currency & political risk, remember ADRs strip away the mechanics of foreign investing but not the risks. A common mistake is assuming dollar-denominated trading hedges the currency; it does not. Memory hook: ADR = “American wrapper, foreign risk.”
PlayPrepHQ study notes are written and reviewed against primary exam sources. How we create & review content →