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CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process

A foreign company wants its shares to be accessible to investors in another country without listing the ordinary shares directly on that country's exchange. Which instrument is most likely used?

A depository receipt is most likely used. A depositary bank issues receipts backed by underlying shares held with a custodian, and the receipts trade on the local exchange in local currency. Preference shares and rights issues address dividend priority and capital raising, not cross-border access.

  1. AA depository receipt representing underlying shares held by a custodianCorrect
  2. BA preference share issued with a cumulative dividend
  3. CA rights issue offered to existing shareholders

Explanation

Depository receipts are issued by a depository bank against shares held by a custodian and trade locally in local currency. Preference shares and rights issues do not provide cross-border access in this way.

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