Sources of Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question
Maharashtra BoardEnglish MediumSTD 12 Commerce / ArtsSecretarial PracticeSources of Corporate Finance4 Marks
Question
What are Global Depository Receipt and American Depository Receipt?
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Answer
The shares that are issued by public limited companies are traded in various share markets.
In India, shares are traded in the Bombay Stock Exchange (BSE) National Stock Exchange (NSE), etc.
Similarly, Shares are traded in foreign stock exchanges like NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation).
Companies that cannot list directly on foreign stock exchange get listed indirectly using GDR & ADR.
GDR and ADR are Dollar/Euro denominated instruments traded on stock exchanges of foreign countries and are depository receipts containing a fixed number of shares.
The Depository Receipts which are traded in the USA are called ADRs and Depository Receipts which are traded in all foreign countries other than the USA are called GDR.
Indian Companies raise equity capital in the international market through GDR and ADR.
Companies issue shares to an intermediary called ‘depository’.
Bank of New York, Citigroup, etc act as Foreign Depository Bank.
The Depository Banks issue GDRs or ADRs to investors against Indian Company’s shares.
These ‘Depository Receipts’ are then, sold to foreign investors who wish to invest their savings in Indian Cost.
The Depository Receipts are listed on the stock exchanges like regular shares.
It is a depository bank that stores the shares on behalf of the receipt holder.
NRI and foreign investors buy Depository Receipt Using their regular equity trading account.
The company pays dividends in the home currency to the depository and the depository converts them into the currency of investor and pays dividends.
Indian Companies like HDFC, ICICI, Infosys Technologies, MTNL, WIPRO have ADR and GDR.
Tata Motors and VSNL have ADRs.
Bajaj Auto Limited ITC, L&T, Hindalco, Ranbaxy Laboratories, and SBI have GDRs.
ADR allows the sale of securities only in the American market whereas GDR allows the sale of securities globally.
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