Receipts representing shares of foreign stocks held on behalf of an investor by a U.S. financial institution are called:

• A. ETFs
• B. Common trust funds
• C. ADRs
• D. Multinationals

Answer: (C)

American Depositary Receipts are created when a U.S. bank holds foreign shares in trust and issues receipts to investors in the United States. These receipts represent the foreign stock and let investors own and trade it in U.S. markets in dollars, with dividends and corporate actions coordinated through the depositary bank. ADRs make investing in foreign companies easier by avoiding direct dealings in foreign markets and currencies, while still backing the receipts with the actual shares kept abroad. They can trade on U.S. exchanges and come in different levels depending on regulatory registration and reporting requirements. This concept distinguishes ADRs from other investment types, such as ETFs (funds that hold a basket of assets), common trust funds (pooled funds managed by banks), or simply multinational corporations, which are companies rather than the instrument describing foreign shares.