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

C)   are required to conform the same Securities and Exchange Commission (SEC) registration and reporting requirements of domestic U.S. companies.

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

2.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 II.

B)   Level III.

C)   Level I.

D)   Level IV.

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

A)   Hong Kong Stock Exchange.

B)   London Stock Exchange.

C)   Frankfort Stock Exchange.

D)   New York Stock Exchange (NYSE).

4.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)   Elimination of economic risks and lower administration and duty costs.

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

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

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

A)   Level I ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and they trade on the NYSE.

B)   Level III ADRs do not comply with SEC registration and reporting requirements and trade on the OTC, NYSE and Nasdaq exchanges.

C)   Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade solely on the OTC market.

D)   Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade on the NYSE and Nasdaq exchanges.

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

C)   are required to conform the same Securities and Exchange Commission (SEC) registration and reporting requirements of domestic U.S. companies.

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

The correct answer was D)

The disadvantage of ADRs is that they do not eliminate the inherent currency and economic risks associated with the shares of a foreign country. The advantage of ADRs is that they save investors considerable money by reducing administration and duty costs on each transaction. Note that ADRs are liquid and that only Level II and III ADRs meet SEC registration requirements, Level I ADRs do not.

2.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 II.

B)   Level III.

C)   Level I.

D)   Level IV.

The correct answer was C)

There are three different types of ADR issues:

§ Level I: This is the most basic type of ADR, used by foreign companies that either don't qualify or don't wish to have their ADR listed on an exchange. Level I ADRs trade solely on the OTC market and are an easy and inexpensive way for a company to gauge interest for its securities in North America.  Level I company ADRs are not required to comply with SEC registration and reporting requirements.

§ Level II: This type of ADR is listed on an exchange or quoted on any official U.S. stock exchange, including the NYSE and Nasdaq. Level II ADRs meet the registration requirements of the SEC but they also get higher visibility trading volume.

§ Level III: These are the most prestigious of the three types, in which an issuer floats a public offering of ADRs on a U.S. exchange. Level III ADRs enable the issuer to raise capital and gain visibility in the U.S. financial markets.

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

A)   Hong Kong Stock Exchange.

B)   London Stock Exchange.

C)   Frankfort Stock Exchange.

D)   New York Stock Exchange (NYSE).

The correct answer was D)

ADRs are listed in the U.S. on the NYSE, AMEX, or Nasdaq exchange and trade like regular stocks. An ADR is a dollar-denominated negotiable certificate representing a specified number of shares in a foreign corporation. ADRs are issued by U.S. banks and consist of a bundle of shares of a foreign corporation that are being held in custody overseas.

4.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)   Elimination of economic risks and lower administration and duty costs.

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

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

The correct answer was D)

ADRs provide the benefit of international diversification at low cost. However, investors still face currency and economic risks.

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

A)   Level I ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and they trade on the NYSE.

B)   Level III ADRs do not comply with SEC registration and reporting requirements and trade on the OTC, NYSE and Nasdaq exchanges.

C)   Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade solely on the OTC market.

D)   Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements and trade on the NYSE and Nasdaq exchanges.

The correct answer was D)

Level II ADRs meet the strictest requirements of the SEC’s registration and reporting requirements, and they trade on the NYSE and Nasdaq markets. Level I ADRs trade solely on the OTC market and do not comply with the SEC registration and reporting requirements. Level III ADRs are able to raise capital by meeting the SEC’s registration and reporting requirements and gain substantial trading privileges in U.S. financial markets.