American Depositary ReceiptADS
An American Depositary Receipt (ADR) is a certificate issued by a US bank that represents a set number of shares in a foreign company. ADRs trade in dollars on US markets like ordinary stocks, making foreign companies easier to buy.
Want to own a Japanese carmaker or a European chip company without opening a foreign brokerage account? ADRs make that possible. A US bank holds the foreign shares and issues dollar-traded receipts against them. This entry explains how ADRs work, the ratio between receipts and shares, the costs and the risks.
- Category
- Market Structure
- Reading time
- 4 min
- Also called
- American depositary receipts, ADRs, Depositary receipt
- Updated
ADRs in plain words
ADRs are negotiable instruments issued by a US bank, each representing a specific number of shares in a foreign company traded on US markets.1
They pay dividends in US dollars and trade like regular shares, on exchanges or over the counter.1
Depositary receipts in general let investors buy foreign companies on their local exchange without converting currency or opening a foreign account.2
How an ADR works, step by step
A US bank buys foreign shares
Held by a custodian abroad.
The bank issues receipts
Each ADR represents a set number of shares.
ADRs list in the US
On an exchange or over the counter. See Over-the-Counter Market.
Investors trade in dollars
Like any US stock.
Dividends are converted
Paid out in dollars after fees. See Dividend.
Price tracks the foreign share
Adjusted for the exchange rate. See Exchange Rate.
Worked examples
Example 1 — Pricing with a ratio
≈ $20One ADR = 2 foreign shares. The share trades at ¥1,500, and $1 = ¥150.
| Share in dollars | ¥1,500 ÷ 150 = $10 |
| ADR value | 2 × $10 = $20 |
Each ADR represents a specific number of foreign shares, so its price reflects the share price and the ratio.1
Example 2 — Currency effect
≈ −6%The share stays at ¥1,500, but the yen weakens to $1 = ¥160.
| Share in dollars | ¥1,500 ÷ 160 ≈ $9.38 |
| ADR value | 2 × $9.38 ≈ $18.75 |
ADR holders still carry currency risk even though they trade in dollars. See Currency Risk.
Example 3 — Dollar dividends
$0.80 per ADRThe company pays ¥60 per share. Rate $1 = ¥150, ratio 2:1.
| Per share | ¥60 ÷ 150 = $0.40 |
| Per ADR (before fees) | 2 × $0.40 = $0.80 |
ADRs pay dividends in US dollars.1
ADR vs buying the foreign share directly
| Aspect | ADR | Direct foreign share |
|---|---|---|
| Currency | US dollars | Local currency |
| Account | Regular US broker | Foreign or international account |
| Trading hours | US market hours | Home market hours |
| Extra costs | Depositary fees | FX conversion, foreign fees |
Why investors use ADRs
International diversification
Owning foreign companies easily. See Diversification.
Emerging markets
Access to companies in developing countries. See Emerging Markets.
Dollar income
Dividends paid in dollars.
Trading arbitrage
Price gaps between ADR and home share. See Arbitrage.
Advantages and disadvantages
Advantages
- Easy access to foreign companies.
- Trades and pays in dollars.
- Uses a normal US brokerage account.
Disadvantages
- Currency risk remains.
- Depositary fees reduce returns.
- Some ADRs trade OTC with less liquidity.
Going deeper
Read as far as you need. Each level builds on the one before it.
A long history
Beginner
ADRs were introduced in 1927; before that, US investors had to buy foreign shares abroad and deal with currency and regulatory differences.1
Depositary receipts worldwide
Intermediate
The same structure exists outside the US — global depositary receipts let investors trade foreign companies on their own local exchange.2
Sponsored or unsponsored
Advanced
Sponsored ADRs are set up with the company's involvement and usually list on exchanges; unsponsored ones are created by banks alone and usually trade OTC. See Over-the-Counter Market.
Common mistakes
Ignoring the ratio
One ADR may equal several or a fraction of a share.
Forgetting currency risk
Dollar trading doesn't remove it.
Overlooking fees
Depositary fees are deducted from dividends.
Missing foreign taxes
Withholding tax may apply. See Taxable Event.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- ADRs represent shares of foreign companies.
- They are issued by US banks and trade in dollars.
- Each ADR has a set ratio to the underlying shares.
- Currency risk and fees still apply.
- They make international investing simple.
Frequently asked questions
Are ADRs the same as owning the stock?
Do ADRs have voting rights?
What is an ADS?
Further learning
- Stock
Share basics.
- Emerging Markets
A common ADR use.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. American Depositary Receipts (ADR) (opens in a new tab) Checked .
- Corporate Finance Institute. Depositary Receipt (DR) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.