Depository Receipts

ADR,GDR,IDR
Benefits to different stake holders
Equity Instruments in International Market
DEPOSITORY RECEIPTS

• Depositary receipt (DR) is a type of negotiable (transferable)

financial security that is traded on a local stock exchange but
represents a security, usually in the form of equity, that is issued by a
foreign publicly listed company.
•Global depository receipts(GDR) represents the shares traded in
various local stock exchanges around the world (such as NSE and BSE
in india, Nikkie in Japan, Hongkong stock exchange in China, New York
stock exchange in America, London Stock exchange in Europe)issued
by foreign public listed company. The global depository receipts will 
be traded all over the world expect the issuing country.
An American Depositary Receipt (ADR) represents the ownership in the
shares of a foreign company trading on US financial markets. The stock
of many non-US companies trades on US exchanges through the use of
ADRs. ADRs enable US investors to buy shares in foreign companies
without undertaking cross-border transactions. ADRs carry prices in US
dollars, pay dividends in US dollars, and can be traded like the shares of
US-based companies.

Each ADR is issued by a US depository bank and can represent a fraction

of a share, a single share, or multiple shares of foreign stock.
What is the difference between ADR and GDR? 
Both ADR and GDR are depository receipts, and represent a
claim on the underlying shares. The only difference is the
location where they are traded. 

If the depository receipt is traded in the United States of

America (USA), it is called an American Depository Receipt, or
an ADR.

If the depository receipt is traded in a country other than

USA, it is called a Global Depository Receipt, or a GDR. 
 
•An European  Depositary Receipt (EDR) represents the
ownership in the shares of a foreign company trading on
European  financial markets. The stock of many non-European
companies trades on European exchanges through the use of
EDRs. EDRs are denominated in Euro.

•An Indian Depository Receipts (IDR) represents the

ownership in the shares of a foreign company trading on
Indian Financial markets. The stock of many non-Indian
companies trades on Indian Stock exchanges through the use
of IDRs.
IDR is an instrument denominated in Indian Rupees in
the form of a depository receipt created by a
Domestic Depository (custodian of securities
registered with the Securities and Exchange Board of
India) against the underlying equity of issuing
company to enable foreign companies to raise funds
from the Indian securities Markets.
Advantages of Depository receipts:
General Benefits:

•To increase global trade, which in turn can help

increase not only volumes on local and foreign
markets but also the exchange of information,
technology, regulatory procedures as well as market
transparency.
•To raise capital in international markets
•To get international recognition
Domestic shares can be traded globally
Benefits For the Company:
•A company may opt to issue a DR to obtain greater exposure
and raise capital in the world market. 
•Issuing DRs has the added benefit of increasing the share's
liquidity while boosting the company's prestige on its local
market
•In many countries, especially those with emerging markets,
obstacles often prevent foreign investors from entering the
local market. By issuing a DR, a company can still encourage
investment from abroad without having to worry about
barriers to entry that a foreign investor might face. 
Benefits For the Investor:

•Buying into a DR immediately turns an investors' portfolio

into a global one. Investors gain the benefits of diversification
while trading in their own market under familiar settlement
and clearance conditions.

•DR investors will be able to reap the benefits of these usually

higher risk, higher return equities, without having to endure
the added risks of going directly into foreign markets, which
may pose lack of transparency or instability resulting from
changing regulatory procedures
Risk in Depository Receipts:

Analyzing foreign companies involves more than just looking

at the fundamentals. There are some different risks to
consider such as the following:
•Political Risk – Is the government in the home country of the
DR stable?
•Exchange Rate Risk – Is the currency of the home country
stable? DRs track the shares in the home country; therefore, if
its currency is devalued, it trickles down to your DR and can
result in a loss.
•Inflationary risk – This is an extension of the exchange rate
risk. Inflation is a big blow to business and the currency of a
country with high inflation becomes less and less valuable
each day.