sschub - This article explains basic of ADR and GDR. These are the methods of raising money (by issuing shares) from foreign stock exchanges.
What is ADR
- ADR => American Depository Reciept
- ADR is method of trading non-U.S. stocks on U.S. exchanges
- For example, Indian Company wants to raise(fetch) money from America, by issuing shares in American stock exchange.
- But then Indian co. need to maintain accounts according to American standards.
- so to prevent this problem, Indian company gives its shares to American bank.
- and in return of those shares, American bank gives receipts (called ADR) to that Indian company.
- so now Indian Co. can trade those ADR receipts (instead of shares receipts) in American share market, to raise money.
- Hence shares are changed into ADR.
What is GDR
- GDR = Global Depository Receipt
- Now think in case, if Indian company wants to raise money from some other 3 or more countries then it will have to maintain 3 or more receipts = very difficult as number of countries increase.
- to resolve this problem, several international banks (such as JPMorgan, Citigroup, Deutsche Bank, Bank of New York) came into play and issued depository receipts globally = these receipts can be traded globally.
- it helps the countries to raise money from the stock exchanges of developed countries.
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