What is the primary function of American Depository Receipts (ADRs)?

• A. Facilitate trading of foreign stocks in U.S. markets because everything is done in English and the U.S. dollar
• B. Guarantee dividends in U.S. dollars
• C. Replace foreign stock with U.S. stock
• D. Are issued only by U.S. banks

Answer: (A)

ADRs exist to let U.S. investors own foreign shares as if they were U.S. stocks, trading on U.S. exchanges in dollars and in English terms. A U.S. depository bank holds the foreign shares and issues receipts that represent those shares, so you can buy, sell, and settle without dealing with a foreign market, currencies, or language barriers. This is why the primary function is to facilitate trading of foreign stocks in U.S. markets in dollars.

Dividends are not guaranteed in U.S. dollars—their currency depends on the foreign company’s dividend payments and may require currency conversion. ADRs also don’t replace foreign stock with U.S. stock; they are a representation that provides access to the foreign shares within the U.S. market. While ADRs are typically issued by U.S. banks, that detail isn’t the main point of their function, and the statement is an overreach relative to the primary purpose.