Lesson 6 of 9
An investor looking at investing in foreign companies can do so in two ways: 1) Direct investing and 2) Depositary Receipts.
This refers to buying and selling securities directly in the foreign markets. This method of investing has several disadvantages:
All transactions will be in foreign company's currency.
The investor must be familiar with the trading rules and regulations in the foreign market.
The investor may not be able to conduct thorough analysis of securities if the foreign country's reporting requirements are less stringent.
Deposit receipts make investing in a company beyond the investor's home borders easy and convenient. A depositary receipt is a negotiable certificate that represents ownership in a foreign firm.
A bank, known as depositary, deposits the shares of a foreign company, and issues shares receipts representing those shares. These receipts are called depositary receipts.