American Depositary Receipt
Definition
A certificate issued by a US bank representing shares of a foreign company, enabling US investors to buy foreign stocks on American exchanges.
Explanation
ADRs solve the practical challenges of international investing: currency conversion, foreign settlement, and regulatory differences. Each ADR represents a specific number of underlying foreign shares. Level I ADRs trade OTC with minimal reporting. Level II and III ADRs list on NYSE/NASDAQ with full SEC reporting. Sponsored ADRs are created with the company's cooperation; unsponsored ADRs are created by banks without company involvement.
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