CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

When a U.S. bank buys foreign stock shares, puts them in a trust and resells trust units, the shares become known as ______.
A. foreign mutual funds
B. foreign trusts
C. American depositary receipts (ADRs)
Explanation: ADR: These securities represent the ownership interest in a foreign company's common stock. The process is as follows: the shares of the foreign company are purchased and put in trust in a foreign branch of a New York bank. The bank, in turn, receives and can issue depository receipts to the American stockholders of the foreign firm. These ADRs (depository receipts) allow foreign shares to be traded in the United States much like any other security. Through ADRs, one can purchase the stock of Sony Corporation, Honda Motor Co., Ltd., and hundreds of other foreign corporations.

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