Topic_18_E1 - Topic 18 Exercise 1 International Investments...

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Topic 18 Exercise 1 International Investments Depository Receipts: The Basics and Benefits The benefits of international diversification can be outweighed by inefficient trade settlements, uncertain custody services and costly currency conversions. Depository Receipts can be used to reduce the problems associated with international investing. Global diversification can be achieved without the added expense of investing directly in the local trading markets. Read the article, “Depository Receipts; The Basics and Benefits,” and answer the following questions: 1. What are Depository Receipts? Briefly explain how they are created. A Depository Receipt is a negotiable U.S. security that generally represents a company’s publicly traded equity or stock. DRs are created when a broker purchases the non-U.S. company’s shares on the home stock market and delivers them to the depository’s local custodian bank, which then instructs the depository bank, such as The Bank of New York, to issue Depository Receipts. DRs may trade freely and can be used to raise capital.
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