What is the purpose of an American Depository Receipt (ADR)?

The purpose of an American Depository Receipt (ADR) is to represent shares of foreign stocks. ADRs are financial instruments that allow U.S. investors to buy shares in foreign companies without the complexities involved in trading on international stock exchanges. When a foreign company wants to offer its shares in the U.S., it can create ADRs that are traded like regular stocks on U.S. exchanges. Each ADR corresponds to a specific number of foreign shares, making it easier for American investors to access international markets and diversify their portfolios. This structure simplifies the process for investors because they can invest in foreign companies in U.S. dollars and receive dividends in the same currency. Additionally, ADRs also comply with U.S. regulations, which helps boost investor confidence.