Series 7 Exam Question 211: Answer and Explanation

Question: 211

Which of the following is NOT a benefit of investing in ADRs?

• A. The dividends are received in U.S. currency.
• B. The transactions are done in U.S. currency.
• C. ADRs are subject to antifraud rules.
• D. Currency risk is minimized.

Correct Answer: D

Explanation:

D. The purpose of ADRs (American Depositary Receipts) is to facilitate the trading of foreign securities in U.S. markets. ADRs carry currency risk because distributions on ADRs must be converted from foreign currency to U.S. dollars on the date of distribution. The trading price of the ADR is actually quite affected by currency fluctuation, which can devalue any dividends and/or the value of the stock.