What is an American Depository Receipt (ADR)?

• A. A share tied to a US company only
• B. A share tied to the price of a non-US company's stock
• C. A document showing company dividends
• D. A type of mutual fund investment

Answer: (B)

An American Depository Receipt (ADR) is indeed a share that represents the price of a non-US company's stock. It serves as a way for American investors to buy shares in foreign companies without dealing with the complexities of foreign stock exchanges. An ADR is issued by a US bank, and it allows investors to trade shares of foreign companies in US dollars on US exchanges. This arrangement simplifies the investment process by making it easier for American investors to hold and trade foreign stocks.

The significance of ADRs lies in their ability to facilitate investment diversification and access to global markets. By utilizing ADRs, investors can gain exposure to international companies while still adhering to US regulatory standards. This enhances liquidity and can lead to more efficient price discovery for the underlying foreign stocks.