Legal Definitions - American Depository Receipt

Definition: An American Depository Receipt (ADR) is a receipt issued by American banks to American investors as a substitute for owning shares of foreign stocks. ADRs are traded on American stock exchanges and over-the-counter, making it easy for investors to trade without having to buy the foreign shares themselves.

Example: Let's say an American investor wants to invest in a company based in Japan. Instead of buying the actual shares of the Japanese company, the investor can buy an ADR from an American bank. The ADR represents ownership of the foreign shares and can be traded on American stock exchanges just like any other stock.

Another example: An American investor wants to invest in a company based in Germany. Instead of going through the hassle of buying the foreign shares and dealing with foreign currency, the investor can buy an ADR from an American bank. The ADR makes it easy for the investor to trade the foreign stock without having to deal with the complexities of foreign markets.

These examples illustrate how ADRs make it easy for American investors to invest in foreign companies without having to deal with the complexities of foreign markets. ADRs are a convenient way for investors to diversify their portfolios and gain exposure to international markets.