Explanation:
Depositary receipts (DRs) are financial instruments that represent ownership in shares of a foreign company. They are created to facilitate trading of foreign securities in local markets. The key characteristics of depositary receipts are:
Trading on local exchanges: Depositary receipts trade on the investors' local exchanges, not on the company's home exchange. This allows investors to buy and sell foreign securities using their local trading infrastructure.
Like ordinary shares: DRs trade like ordinary shares on the local exchange, with the same trading mechanisms, settlement procedures, and regulatory framework as domestic securities.
Currency: DRs are typically denominated in the local currency of the exchange where they trade, not in the company's home currency. This eliminates foreign exchange risk for local investors.
Structure: A depositary bank holds the underlying shares and issues receipts that represent ownership of those shares. These receipts then trade on local exchanges.
Why option A is correct:
Why option B is incorrect:
Why option C is incorrect:
Real-world example: A Chinese company's ADRs trade on the NYSE in US dollars, following US trading rules and settlement procedures, making them accessible to US investors without dealing with Chinese currency or trading systems.
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A company's depositary receipts most likely trade:
A
like ordinary shares on the investors' local exchanges.
B
in the local currency on the company's local exchange.
C
in the company's currency on investors' local exchanges.