Products & Their RisksQuestion 12 of 398
Which of the following statements about an ADR holder is TRUE?
a.The holder generally receives dividends in the foreign currency
b.The holder has full voting rights identical to a domestic shareholder
c.The holder is guaranteed against currency risk by the depositary bank
d.The holder still faces currency risk because the underlying shares are foreign
Explanation
Even though an ADR trades in U.S. dollars, its value reflects a foreign company's shares, so the holder is exposed to currency (exchange-rate) risk. Dividends are converted to dollars, voting rights are often limited, and the bank does not guarantee against currency risk.
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