CFA Level I · CFA Level I Exam · Equity Instrument Features
Compared with holding the foreign shares directly, a key disadvantage of owning a depository receipt is that the holder most likely:
The holder most likely bears depository fees and exercises voting rights only indirectly through the depository bank. Currency exposure remains because the receipt's value depends on the foreign share price and exchange rate, and dividends are still received, paid in the receipt's currency.
- Abears the cost of depository fees and the voting process is indirectCorrect
- Bfaces no exposure to the foreign currency of the underlying shares
- Ccannot receive dividends declared on the underlying shares
Explanation
Holders typically pay depository fees, often deducted from dividends, and exercise votes through the depository bank. Receipt holders still bear currency exposure because the value depends on the foreign share price and exchange rate, and they do receive dividends, converted to the receipt currency.
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