- Unsponsored ADR – This is ADR which involve no direct involvement of the foreign company (whose shares are involved). Custodian banks buy shares of the company, hold then, and issues ADRs through a brokerage firm. The ADR holder may not receive all the benefits associated with the shares. Unsponsored ADRs are traded usually over-the-counter.
- Sponsored ADR – This is ADR which involve direct involvement of foreign company. The company chooses a single depository bank and registers DRs with SEC. The ADR holder receives all share holder benefits. Sponsored ADRs are usually traded through major exchanges like NYSE and AMEX.
- ADRs help investors to invest in big foreign companies and are good instruments for portfolio diversification.
- They help the investors to profit from many emerging market companies (high risk high return instruments).
- All transactions including buying the shares, dividend payments and capital gains are done in U.S. Dollars.
- The competitive rates of Euro and U.S. Dollar over other market currencies also benefit the investor.
- ADRs offer more transparency and stability than trading the stock directly in a foreign market.
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