ADRs are a popular investment tool for many U.S. investors. In recent years several alternatives for investing in foreign equity securities have become available for U.S. investors, yet ADRs remain popular
Define what an ADR is and provide at least three examples of the advantages they may hold over alternative foreign investment vehicles for U.S. investors.
What will be an ideal response?
Answer: Depositary receipts are negotiable certificates issued by a bank to represent the underlying shares of stock held in trust at a foreign custodian bank. Those receipts traded in the U.S. and denominated in dollars are called American depositary receipts (ADR). Because ADRs can be exchanged for the underlying foreign security, arbitrage keeps the prices in line. Even though U.S. investors can invest directly into some foreign equity markets, ADRs do offer some technical advantages. Among those advantages are that dividends are received in dollars rather than a foreign currency, ADRs are in registered form rather than bearer form, transfer of ownership is done in accordance with U.S. laws, and in the event of death, probate is in the U.S. and not abroad. Taxes are easier, trading costs are typically lower, and settlement is also faster.
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Exhibit 15-2 Lawrence, Inc, entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full. ? Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and
issued those shares. Subscribers defaulted on 200 shares. The entry to record the default on 200 shares would include a A) debit to Common Stock Subscribed for $3,000. B) credit to Subscriptions Receivable: Common Stock for $3,000. C) debit to Additional Paid-in Capital on Common Stock for $2,000. D) credit to Additional Paid-in Capital from Subscribed Stock for $600.
For each of the following variances, state which manager is most likely to be responsible for the variance.
Which of the following is NOT an example of a digital marketing channel?
A) television B) email C) social media D) search engine E) pay per click advertisements
Modigliani Miller (M-M) Proposition II states _____
A) the cost of equity does not change when a firm takes on a greater proportion of debt.
B) the cost of equity increases when a firm takes on a greater proportion of debt.
C) the cost of debt increases when a firm takes on a greater proportion of equity.
D) the cost of equity decreases when a firm takes on a greater proportion of debt.