International Markets and Currency Risk
Key SIE facts on ADRs, foreign issuers, exchange rates, and currency risk.
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Questions Covered in This Set
10 cards to master
What is an ADR?
A receipt issued by a U.S. depositary bank representing shares of a foreign company; it trades in U.S. dollars on a U.S. exchange or OTC.
Do ADRs eliminate currency risk?
No. Although the receipt is dollar-denominated, the underlying shares are priced in a foreign currency, so exchange-rate moves still affect value. (Most-missed exam point.)
How are ADR dividends paid?
Declared in the foreign currency, converted by the depositary bank, and paid to the holder in U.S. dollars (minus a small fee).
What voting rights do ADR holders have?
Generally none, or only pass-through voting exercised by the depositary bank.
What tax issue arises with ADRs?
Foreign withholding tax is often deducted at the source; U.S. holders may claim a foreign tax credit.
Eurodollar bond vs. Yankee bond?
Eurodollar bond: dollar-denominated bond sold outside the U.S. Yankee bond: dollar-denominated, SEC-registered bond sold in the U.S. by a foreign issuer.
Rule 144A vs. Regulation S
144A = private sales to Qualified Institutional Buyers inside the U.S.; Reg S = offshore sales safe harbor from SEC registration.
What annual report does a foreign issuer file with the SEC?
Form 20-F (instead of the 10-K used by U.S. issuers).
Effects of a strengthening U.S. dollar?
U.S. exports become more expensive (exports fall), imports become cheaper (imports rise), trade deficit widens, and foreign investments lose value in dollar terms.
What is a GDR?
A Global Depositary Receipt — a depositary receipt used in multiple non-U.S. markets, often listed in London or Luxembourg.
