The investment known as ADR stands for American Depositary Receipts, which is a tool used to make it easier for investors to invest in foreign markets. Instead of having to find a broker with capabilities in the foreign markets where the securities trade, an investor can just receive ADRs from a depositary bank that collects the foreign companys shares.
These ADRs can be then represent shares in that foreign market. There are many advantages to using ADRs that we have talked about in class such as the liquidity of these assets. Since the whole process of investing in foreign markets has become easier, the market has become far more liquid. The annual dollar volume of ADRs has increased from $75 billion dollars in 1990 to $550 billion in 2002. Instead of having to different brokers and red tape to sell foreign investment we can simply trade ADRs.
As technology advances it has become easier to invest in foreign companies and we can see this through the use of depositary receipts. Not only are depositary receipts issued in America but they are also issued in other countries as well such as Euro DRs, Singapore DRs and China DRs. In the Wall Street Journal on 2/24/06...
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