Harvey Wellington manages the London office for Samson Securities, a large investment bank based in New York. Wellington is working with several clients in Great Britain and Continental Europe who want to increase the appeal of their shares to U.S. investors.

Two clients in particular, a German staffing firm called Werk Corp. and a British maker of medical-supplies called Sussex Sutures, are in a hurry to reach the U.S. market. Wellington considers some characteristics of both companies before making his recommendation.

Werk Corp.

• Seeks higher visibility in the U.S.
• Worried about U.S. perception of the euro.
• Has little cash to spend.
• Not prepared to meet U.S. accounting standards.

Sussex Sutures

• Wants to increase sales to U.S. customers.
• Needs ADR to raise capital for expansion.
• Prepared to meet U.S. accounting standards.
• Seeks to limit issuing costs.

While Wellington is considering how best to help Werk Corp., one of Samson’s institutional clients, Cleveland’s Carter-Worth Cogs, purchases 5,000 shares of Werk Corp. on the German exchange for 26.85 euros (

Which of the following is most likely an advantage of American Depositary Receipts (ADRs)?

A) Elimination of currency risk and higher administration and duty costs.

B) Relatively large number of ADRs available in the market and ability to eliminate currency risks.

C) Benefits of international diversification and lower administration and duty costs.

American Depository Receipts (ADRs) are generally foreign corporations that can be traded on the:

A) Frankfort Stock Exchange.

B) Hong Kong Stock Exchange.

C) New York Stock Exchange (NYSE).

Which of the following types of American Depository Receipts (ADRs) offer the most latitude in registration and reporting requirements while also allowing the foreign corporation an easy and inexpensive way to gain exposure to American investors?

A) Level III.

B) Level I.

C) Level II.

A major disadvantage of an American Depository Receipt (ADR) is that ADRs:

A) are highly illiquid trading instruments that have high transaction costs and market impact costs.

B) do not eliminate currency and economic risks associated with the foreign corporation.

C) are expensive to administer and do not represent a proportionate interest in the foreign corporation.

Various forms of American Depositary Receipts (ADRs) differ in their registration requirements with the Securities and Exchange Commission (SEC) and where they trade. Which of the following statements best describes these differences?

A) Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade on the New York Stock Exchange (NYSE) and NASDAQ exchanges.

B) Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade solely on the Over-The-Counter (OTC) market.

C) Level I ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and they trade on the New York Stock Exchange (NYSE).