An ADR is a simple way for U.S. investors to invest in companies that are based outside the United States. Instead of trying to trade on a foreign exchange, manage different currencies, or navigate unfamiliar regulations, investors can buy an ADR the same way they buy any U.S. stock.
Here’s how it works: a U.S. depositary bank holds shares of a foreign company in its home market. Then it issues “receipts” in the United States that represent those shares. These receipts—ADRs—trade on U.S. markets in U.S. dollars, pay dividends in dollars, and settle through the same systems used by all American stocks.
ADRs also come in three “levels,” each representing how closely the foreign company participates in U.S. markets:
This structure gives foreign companies flexibility while giving U.S. investors a straightforward way to invest globally—no currency conversions or international accounts required.
ADRs open the door to global investing without the complexity of trading on foreign exchanges. They give investors a simple, regulated way to diversify and access companies from all over the world.
Higher ADR levels (II and III) offer more transparency, stronger reporting, and listings on major exchanges. That typically means better liquidity and easier access for U.S. investors.
Yes. If the foreign company pays dividends, the depositary bank converts them into U.S. dollars and distributes them to ADR holders, just like a regular U.S. stock.
Imagine you want to invest in Nestlé, which trades in Switzerland. Instead of opening an international brokerage account, you simply buy Nestlé’s ADR on a U.S. exchange using dollars. The process feels no different from buying Apple or Microsoft.
