- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 4. Overview of Equity Securities
- Subject 4. Investing in Non-Domestic Equity Securities
CFA Practice Question
Which statement is correct?
B. ADRs can be used to eliminate currency risk.
C. ADRs can be used to eliminate country-specific risks.
D. None of the above
A. Level II ADRs cannot be listed and traded on U.S. securities exchanges such as NYSE or AMEX. However, they can be quoted on NASDAQ.
B. ADRs can be used to eliminate currency risk.
C. ADRs can be used to eliminate country-specific risks.
D. None of the above
Correct Answer: D
Level II ADRs can be listed on an official U.S. exchange or NASDAQ. ADRs cannot be used to eliminate currency or country-specific risks.
User Contributed Comments 5
| User | Comment |
|---|---|
| Shaan23 | I thought ADR"s do eliminate currency risk. We're investing domestically due to them and no longer have to invest our domestic current in foreign markets to attain the shares |
| CJPerugini | ^ That was what I thought at first too. The only thing that ADRs provide investors is the convenience of not having to convert their US$ to foreign currency. You are still indirectly subjected to currency risk. |
| ascruggs92 | Buying ADR's eliminates currency risk for you as an individual, but it does not eliminate currency risk for the company, which means that it effects you as a shareholder. |
| forry9er | I saw "Eliminate" and immediately thought B & C could not be true. "Mitigate" maybe, "eliminate?" impossible. |
| thevinu | ADRs DO NOT eliminate CURRENCY RISK, it ONLY eliminates the CONVERSION RISK. |