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WHAT IS ADR
ADR - American Depositary Receipts
A negotiable certificate issued by a U.S. bank Represents a specified number of shares of a foreign company ADRs are denominated in U.S. dollars.
Quick calculation means 1 ADR = US $400 Once ADR are priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary shares.
ADR RATIO
Single 1 ADR = 1 SHARE ADR Ratio = 1:1
Multiple
ADR
TYPES of ADR: ADR listing:
ADVANTAGES OF ADR
It is an easy and cost effective way to buy shares of a foreign company Reduces administrative costs and avoids foreign taxes on every transaction Helps companies which are listed to tap the American equity markets Any foreigner can purchase these securities
The purchaser has a theoretical right to exchange shares (non- voting right shares for voting rights)
GDR MARKET
GDRs can be created or cancelled depending on demand and supply. When shares are created, more corporate stock is placed in the custodian bank in the depositary bank account. The depositary bank then issues the new GDRs
Factors governing GDR prices are company track record, analysts recommendations, relative valuations, market conditions and also international status of the company
GDR LISTING
London Stock Exchange Luxembourg Stock Exchange Singapore Exchange
Hong Kong Exchange
However, they have foreign exchange risk i.e. currency of issuer is different from currency of GDR
COMPANY SHARE
DEPOSITARY BANK
INVESTOR
ECB
ECB
The ECB is the central bank for Europe's single currency, the euro. The ECBs main task is to maintain the euro's purchasing power and thus price stability in the euro area.
The euro area comprises the 17 European Union countries that have introduced the euro since 1999.
ECB - TASKS
The tasks of the ESCB and of the Eurosystem are laid down in the Treaty establishing the European Community. They are specified in the Statute of the European System of Central Banks (ESCB) and of the European Central Bank (ECB). The Statute is a protocol attached to the Treaty. The Treaty text refers to the ESCB' rather than to the 'Eurosystem'. It was drawn up on the premise that eventually all EU Member States will adopt the euro. Until then, the Eurosystem will carry out the tasks.
The objectives of the Union (Article 2 of the Treaty on European Union) are a high level of employment and sustainable and noninflationary growth.
SWAP
SWAP
Swap is an agreement between two parties, called counterparties to trade cash flows over a period of time. Swaps are flexible and are useful in many financial situations There are 2 types of swap:
Currency swap
SWAP
Specifically, the two counterparties agree to exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are calculated. Usually at the time when the contract is initiated at least one of these series of cash flows is determined by a random or uncertain variable such as an interest rate, foreign exchange rate, equity price or commodity price.
SWAP
These two swaps can be combined when interest on loans in two currencies are swapped. The interest rate and currency swap markets enable firms to arbitrage the difference between capital markets. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest (or coupon) payments associated with the bonds.
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