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What is an American Depositary Receipt (ADR)?

ADRs represent an easy, liquid way for U.S. investors to own foreign stocks. These investments may open investors up to double taxation, and a limited number of options are available. American depositary receipts are denominated in U.S. dollars. The underlying security is held by a U.S. financial institution, often by an overseas branch.

What is an ADR & how does it work?

An ADR may represent the underlying shares on a one-for-one basis, a fraction of a share, or multiple shares of the underlying company. The depositary bank will set the ratio of U.S. ADRs per home-country share at a value that they feel will appeal to investors. If an ADR's value is too high, it may deter some investors.

How much does it cost to invest in an ADR?

Investing in an ADR may incur additional fees that are not charged for domestic stocks. The depositary bank that holds the underlying stock may charge a fee, known as a custody fee, to cover the cost of creating and issuing an ADR. This fee will be outlined in the ADR prospectus and typically ranges from one to three cents per share.

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