GLOBAL DEPOSITORY RECEIPT (GDR) :
- Global Depository Receipt (GDR), is a certificate issued by a Depository Bank (Depository Bank of London) which purchases shares of foreign companies (TCS) and deposits them in their account.
- GDRs represent ownership of number of shares belonging to a foreign company (TCS).
- GDR's are commonly used by investors in developed markets to invest in companies from emerging markets .
To Understand:
Let there is an investor "X" in Britain & wishes to invest in any INC "TCS"
Depository Bank of London will purchase TCS share
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"X" will purchase TCS share from Depository Bank of London
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Depository Bank of London will issue GDR to X.
Advantages of GDR to issuing company:
- Increase the accessibility to foreign capital markets,
- Increase in the visibility of the issuing company globally
- Rise in the capital because of foreign investors
Advantages of GDR to investor:
- Diversification of investment, hence reducing risk
- Providing an opportunity for the investor to invest in foreign companies
American depositary receipt (ADR):
- GDR in case of USA is known as ADR.
- It is a Negotiable certificate issued by a U.S. bank against shares in a foreign stock (eg stock of any Indian company being traded at US stock exchange ) that is traded on a U.S. exchange.
- ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.
- ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.
Advantages of GDR for US investor:
- ADRs are an easy and cost-effective way for US investors to buy shares in a foreign company.
- They save money by reducing administration costs and avoiding foreign taxes on each transaction.
Advantages of GDR to issuing company:
Foreign entities get more U.S. exposure, allowing them to tap into the wealthy North American equities markets.
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