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ADRs and Exchange Rate

Course: Investment Planning
Lesson 4: International Equity Securities

Student Question:

Is it not true that ADRs eliminate currency risk because transactions are done in USD?

Lafe

 


Instructor Response:

Great question Lafe.

ADRs do not guarantee exchange rates; they merely exchange foreign currency to US$ as a convenience to ADR investors.

Changes in the exchange rate are reflected in the market price of the ADR.

Hope that helps!

 

Bruce