Regarding ADR dividends, what do the banks do for U.S. owners?

• A. Collect the dividends and convert them to U.S. dollars
• B. Pay foreign taxes directly to investors
• C. Guarantee dividends
• D. Insure the ADRs

Answer: (A)

The key idea is that the depositary bank handles the foreign dividend for U.S. ADR holders. When the foreign issuer pays a dividend, it comes in the local currency. The bank collects that dividend, converts the proceeds into U.S. dollars, and then distributes the cash to U.S. owners. The amount received may be net of any foreign taxes and after the bank’s currency conversion and any fees.

This is what ADRs do for investors: they simplify receipt of foreign dividends by converting them to dollars and delivering them to you. The bank does not guarantee dividends, insure the ADRs, or directly pay foreign taxes to investors; taxes withheld by the foreign jurisdiction are handled through the depositary and reflected in the net payout to the ADR holder.