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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Which statement about American Depository Receipts (ADRs) issued by an Indian company is correct?

ADRs are dollar-denominated receipts traded in the US market, issued by a depository bank against the Indian company's underlying shares that are held by a domestic custodian. The option describing foreign shares listed in India refers to IDRs, and ADRs are not rupee bonds.

  1. AThey are dollar-denominated instruments issued in the US market, representing underlying shares held by a domestic custodianCorrect
  2. BThey are rupee-denominated bonds issued to Indian residents
  3. CThey represent shares of a foreign company listed on Indian exchanges
  4. DThey can be issued only by banks and never by companies

Explanation

An ADR is issued by a US depository bank against Indian shares held by a custodian in India, and is traded in dollars in the US. Instruments representing foreign shares and listed in India are IDRs, not ADRs. ADRs are not rupee bonds for residents.

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