CFA Level I · CFA Level I Exam · Equity Instrument Features
A depository receipt (DR) is best described as a security that:
A depository receipt trades in a local market and represents ownership in shares of a foreign company that a depository bank holds in custody. It makes foreign equity easier to trade locally, but it does not hedge currency risk or register the investor as a direct shareholder.
- Ais issued by a custodian bank to hedge the foreign exchange risk of the underlying shares.
- Btrades in a local market and represents ownership of shares of a foreign company held by a depository bank.Correct
- Cgives the holder direct registration as a shareholder in the foreign company's home market.
Explanation
A DR is issued by a depository bank and trades locally, representing ownership in foreign shares held in custody. It does not hedge currency risk, and the DR holder is not directly registered in the home market; the depository is the shareholder of record.
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