There are a variety of methods for investing in non-domestic equity securities.
Investors can buy and sell securities directly in foreign markets. However, they have to worry about currency conversions, unfamiliar market practices, and differences in accounting practices.
Depository Receipts (DRs) are domestically traded securities representing claims of shares of foreign stocks. Those shares are held in deposit in a local bank, which in turn issues DRs in the name of the foreign company. Investors buy and sell DRs in local currency and receive all dividends in local currency.
An unsponsored DR is issued by a broker/dealer or depository bank without the involvement of the company whose stock underlies the DR.
A sponsored DR is issued with the cooperation of the company whose stock underlies the DR. These shares carry all the rights of the common shares, such as voting rights.
A global depository receipt (GDR) is a DR issued outside the company's home country and outside the U.S. A GDR is very similar to an ADR. It is typically used to invest in companies from developing or emerging markets.
An American depositary receipt (ADR) is a U.S. dollar-denominated DR that trades on a U.S. exchange. Sponsored ADRs are classified at three levels:
Other methods to invest in non-domestic equity securities include global registered shares and baskets of listed depository receipts.