An American depositary receipt abbreviated as ADR is a type of negotiable certificate that is issued by a U.S. depository bank that represents a specified number of shares, generally a single share- which is of a foreign company's stock. The ADR trades on the U.S. stock markets as any domestic shares would trade.
A global depository receipt which is abbreviated as GDR is quite similar to the American Depository Receipt. This is a type of bank certificate which represents the share in a foreign company. This is a foreign bank that holds the shares internationally. The shares are traded as domestic shares among them, but, globally, various bank branches offer the shares for sale.
Difference Between ADR and GDR
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The difference between ADR and GDR are as follows:
The depository is a type of mechanism through which a domestic company is able to raise finance from the international equity market. In this system of depository receipt, the shares of the company are domiciled in one country which is held by the depository, particularly by the Overseas Depository Bank, and these issues claim against the shares. These kinds of claims are known as the Depository Receipts which are denominated in a convertible currency, mostly in US $, but which can also be denominated in Euros. These receipts are listed on the stock exchanges.
ADR and GDR are the only two depository receipts, which are being traded in the local stock exchange but this is being represented by a security that is issued by a foreign publicly listed company.
Full Form of ADR and GDR
ADR and GDR are commonly used by Indian companies in order to raise accurate funds from the foreign capital market. ADR is traded on US stock exchanges, while GDR is traded on the European stock exchanges.
The full form of both is American Depository Receipts and Global Depository Receipts respectively. Further, we will focus our view on the details of both these receipts.
American Depository Receipt or ADR, is the negotiable certificate, that is issued by a US bank, denominated in the US$ representing the securities of a foreign company that is trading in the stock market of the States. These are the claims against the number of shares that are underlying. ADR’s are offered for sale to American investors. ADR’s are also easily transferable, without any stamp duty.
GDR or the Global Depository Receipt is also a negotiable instrument that is used to resource the financial markets of various countries with a single instrument. The receipts are issued by the depository bank, in more than a single country by representing a fixed number of shares into a foreign company.