ADRs are American Depository Receipts, an investment option open to interested buyers in the US who want to become stakeholders in a foreign company. A bank or brokerage may issue an ADR in the US representing shares in the overseas company. An ADR may represent a fraction, one, or many shares of the foreign company.
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Chapter 1: What are ADR
An investor who wants to buy international stocks would have a difficult time doing so without ADRs. He will need to set up a brokerage account in the foreign country, shop for brokers there, identify attractive stocks, convert his funds into the foreign currency, then complete the transaction.
He would then have to track the investment and undergo the same complicated process at the time of sale. This makes foreign investment effort intensive and time consuming.
ADRs were introduced to the American investment world in 1927 by JP Morgan to enable foreign investment without all these hassles. The first ADR allowed Americans to buy a stake in Selfridges, a successful chain of stores based in Britain. Today, there are several ADR options available in the market.
Next Chapter: How Do ADR Work