ADRs vs. ADSs: Understanding the Key Differences for International Investing
When it comes to international investment, both ADRs and ADSs can be utilized by domestic investors. Although these 2 terms are closely related, there are some distinct differences between them. Here are a few things to consider about the difference between ADRs and ADSs.
ADR
The term ADR stands for American Depository Receipt. This is when a domestic bank purchases a large number of shares in a foreign corporation. The bank will then keep these shares and create other shares that are available for purchase by domestic investors. Each one of these shares represents a certain number of shares in the foreign corporation. Many investors prefer of this method of international investment because it is easily purchased on domestic stock exchanges. They do not have to open a separate brokerage account or worry about issues with purchasing foreign securities.
ADS
The term ADS stands for American Depository Share. The American depository share is the actual share in the foreign company that is held by the investment bank. Domestic investors will be purchasing ADRs that represent a certain amount of ADSs. Therefore, if you are involved in purchasing ADRs, you will also be the owner of an ADS by default.
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