Depositary Receipt
Candlefocus EditorThe issuer of a depositary receipt is usually a domestic bank. It is the bank’s responsibility to maintain the ownership records of the shares, as well as to facilitate the payment of dividends to the investors. Investors can purchase depositary receipts just like any other stocks. They can do so through a broker or through a local stock exchange.
One of the advantages of purchasing depositary receipts is the ease of international investment. By trading on a local exchange, investors can gain exposure to foreign companies without needing to purchase through the foreign exchange itself. It is relatively inexpensive and convenient compared to buying foreign shares. In addition, it can help to diversify a portfolio.
The risk of investing in depositary receipts is similar to investing in any other share. It is subject to market risks as prices may fluctuate based on the health of the foreign company and the local stock exchange. It is important for investors to consider all possible risks carefully before deciding to invest in a depositary receipt.
In conclusion, depositary receipt is an instrument that allows investors to gain exposure to foreign companies without having to directly purchase foreign shares. By trading in the local exchange, depositary receipts increase the liquidity and accessibility of the foreign companies. Although it has its risks, when done correctly, it can add diversity to an investor’s portfolio, making it a beneficial and efficient way to invest in foreign markets.