SIE Exam Question 625: Answer and Explanation

Question: 625

All but which of the following are characteristics of American Depository Receipts (ADRs)?

• A. They are traded on secondary exchanges.
• B. They represent ownership interest in foreign securities denominated in U.S. dollars.
• C. They involve banks collecting money in U.S. dollars and then converting into foreign currency for ADR holders.
• D. They are issued by banks in foreign countries.

Correct Answer: C

Explanation:

For ADRs, banks collect money in their local currency and then convert to U.S. dollars. ADRs are traded on secondary exchanges and represent ownership interest in foreign securities denominated in U.S. dollars. They are issued by banks in foreign countries.