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Which of the following is NOT true about American Depository Receipts (ADRs)? A. ADRs are claims...

Which of the following is NOT true about American Depository Receipts (ADRs)?

A. ADRs are claims issued by U.S. financial intermediaries (FIs) against shares in foreign companies, with the shares held in custody by financial intermediaries for investors.

B. ADRs are issued in the U.S. and are denominated in U.S. dollars. All cash flows to the investor are in dollars.

C. An ADR enhances a companys visibility, status and profile in the U.S. and internationally among investors.

D. An ADR decreases the foreign firms U.S. liquidity (and potentially total global issuer liquidity).

E. All of the above are true.

In secondary stock markets, brokers earn ____ , dealers earn ____.

A. commissions; commissions

B. commissions; bid-ask spread

C. underwriter's spread; bid-ask spread

D. bid-ask spread; commissions

E. bid-ask spread; underwriter's spread

Solutions

Expert Solution

Which of the following is NOT true about American Depository Receipts (ADRs)?

NOT TRUE : D. An ADR decreases the foreign firms U.S. liquidity (and potentially total global issuer liquidity).

explanation :

ADRs are basically an easier way for US investors to purchase stock of foreign companies. When there were no ADRs, US investors have to buy them in inrtenational exchanges, which has problems like regulatory differences, currency exchange issues.

secondly, ADRs give forein companies a way to enhance their prestige in US. if they perform good, the US investors will be more attracted towards these types of companies.

thirdly, all incomes are in dollar terms.

it is for the benefit of investors. so rules & regulations framed are in no way affects the liquidity of foreign companies. The US market accounts for half of world market's total stock value and they have comparatively lower transaction costs, which boosts the liquidity

In secondary stock markets, brokers earn ____ , dealers earn ____.

CORRECT ANSWER : B. commissions; bid-ask spread

when anyone buy shares or sell shares, he pays commission to brokers, there is not bid ask terminology. but when we deal in foreign exchange with dealers, dealer makes money from bid -ask spread.

jeff jeffy answered 2 years ago
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