Question

2) Level II ADRs are:

a. those that are listed on a U.S. Exchange and cannot raise new money in U.S.

b. none of the other answers

c. private placements by foreign firms in U.S. under Rule 144a

d. those that are listed on a U.S. Exchange & can raise new money in U.S. e. those that are not allowed to be listed on a U.S. Exchange

Answer 1

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Correct Answer: Option a) Those that are listed on a U.S. Exchange and cannot raise new money in the U.S.

Reasoning:

Statement 1) Those that are listed on a U.S. Exchange and cannot raise new money in U.S.

An ADR is a certificate factoring shares of foreign company stock held in a bank within the United States and denominated in the local currency.ADR further has three levels.

Level 1 is the one that can be traded over the counter. Level II and III can be traded over the US stock exchange. However, level II ADRs cannot raise further capital. Therefore, statement one is correct.

Statement 2) Private placements by foreign firms in the U.S. under Rule 144a

Shares of companies registered under Rule 144-A are restricted stock and can be only available to qualified institutional buyers (QIBs) for trading and investing purposes. The rule is more applicable to level I of ADR wherein the shares are not allowed to be listed for retail investors, are confined to the QIBs.Therefore, the statement is incorrect.

Statement 3) Those that are listed on a U.S. Exchange & can raise new money in the U.S.

As discussed above, only level III is allowed to raise new money in the U.S and not level II ADRs.Therefore, the statement doesn't fit well for ADR level II.

Statement 4) Those that are not allowed to be listed on a U.S. Exchange

Level II ADRs are allowed to be listed on stcok exchanges after fulffing certain requirments.It is level I ADR which can only be traded over the counter and arent allowed to be listed in the U.S markets.