ADRs are a popular investment tool for many U.S. investors. In recent years several alternatives for investing in foreign equity securities have become available for U.S. investors, yet ADRs remain popular

Define what an ADR is and provide at least three examples of the advantages they may hold over alternative foreign investment vehicles for U.S. investors.
What will be an ideal response?

Answer: Depositary receipts are negotiable certificates issued by a bank to represent the underlying shares of stock held in trust at a foreign custodian bank. Those receipts traded in the U.S. and denominated in dollars are called American depositary receipts (ADR). Because ADRs can be exchanged for the underlying foreign security, arbitrage keeps the prices in line. Even though U.S. investors can invest directly into some foreign equity markets, ADRs do offer some technical advantages. Among those advantages are that dividends are received in dollars rather than a foreign currency, ADRs are in registered form rather than bearer form, transfer of ownership is done in accordance with U.S. laws, and in the event of death, probate is in the U.S. and not abroad. Taxes are easier, trading costs are typically lower, and settlement is also faster.