ADRs (American Depositary Receipts) provide investors in the US market with an easy way to gain exposure to foreign stocks without dealing with the complexities of foreign markets. Managed by U.S. custodian banks, ADRs are listed on major U.S. exchanges like Nasdaq and NYSE. They represent American Depositary Shares (ADS) that offer similar rights to common stocks, including ownership and dividends.
Dividends are paid per ordinary share, meaning that if the dividend to be paid is $0.50 per ordinary share and the ADR ratio is one (1) ADS for two (2) ordinary shares, the total dividend paid to the shareholder in the American market would be $1.00 per ADS.
Foreign companies use ADRs to reach U.S. investors, enabling them to diversify their portfolios with international investments. On platforms like EasyEquities, investors can explore various ADRs that trade at a defined ratio, ensuring ownership of a specific amount of ordinary shares per ADS.
Some examples of ADS available on EasyEquities include:
Furthermore
Investors can transfer funds to the U.S. market via EasyFX by navigating to My Funds and then Transfer. Transfers done on weekdays before 11:30 a.m. typically reflect the same day.
While the ADS-to-common stock ratio is usually one-to-one, investors face risks from foreign exchange fluctuations, which can affect the value of dividends and stock prices depending on the strength of the U.S. dollar against the foreign currency.
Despite these benefits, there are potential drawbacks, such as liquidity risks if demand for ADS is low. Low trading volume may hinder the foreign company's ability to raise capital in the U.S. market, emphasising the importance of investor interest in the success of ADRs.
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