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Navigating Global Investments with American Depository Receipts (ADRs): A Spotlight on TEVA

by Trading ADR team on 06/27/23

The financial markets are a vast, interconnected web that spans the entire globe. And for the savvy investor, it's not just Wall Street that beckons, but bustling financial hubs from Tokyo to Tel Aviv. Thanks to innovative tools like American Depository Receipts (ADRs), investing in foreign companies has never been easier. This article serves as your trusty guide to understanding ADRs, with a special highlight on TEVA as a prime example.

ADRs: Your Passport to International Shares

Imagine trying to juggle foreign securities laws, language barriers, and the hassle of foreign exchanges. Daunting, isn't it? That's where ADRs come to the rescue. Picture ADRs as your trusty financial translator, letting you own shares in foreign companies while bypassing the usual hurdles. When you purchase an ADR, you're essentially buying a foreign share dressed up in a U.S. package.

ADRs have been around since 1927, providing a smart shortcut for U.S. investors to own a piece of overseas companies. The process is straightforward: you trade in U.S. dollars during regular trading hours, avoiding the headache of dealing with foreign exchanges.

The magic behind ADRs is thanks to American banks or financial institutions. These institutions serve as the issuers of ADRs and the record-keepers of ADR holders. Meanwhile, across the ocean, a U.S. financial institution holds the foreign shares underpinning the ADRs.

ADRs come in three types: Level I, Level II, and Level III. Level I ADRs are the most basic form and you'll find them traded over-the-counter. Level II ADRs step up the game with more regulatory requirements and a listing on an exchange. Level III ADRs are the heavyweights, used when foreign companies want to raise capital in the U.S., and hence, carry the most regulatory requirements.

Dividends, Voting Rights, and Risks with ADRs

Here's some more good news: ADRs typically entitle you to dividends, conveniently paid in U.S. dollars. While voting rights are technically part of the package, many ADR holders find the process a tad complicated, and for Level I ADRs, voting rights might not be guaranteed.

ADRs also come with a couple of risk tags: currency risk and country risk. Currency risk pops up when the U.S. dollar's value dances with the foreign currency of the underlying shares. Country risk, on the other hand, relates to the political and economic stability of the foreign company's home turf.

TEVA: ADRs in Action

To bring this all to life, let's shine a spotlight on a real-life example of an ADR: Teva Pharmaceutical Industries Limited (TEVA). Based in the heart of Israel, TEVA is a pharmaceutical giant whose ADRs strut their stuff on the New York Stock Exchange.

Each TEVA ADR is a stand-in for one ordinary share of Teva Pharmaceutical Industries Limited. If the company declares dividends, ADR holders will find their pockets lined with U.S. dollars.

Investing in TEVA's ADRs gives you a backstage pass to the financial performance of a global pharmaceutical powerhouse. You'll be dipping your toes in the world of specialty and generic medicines without the need to wrestle with foreign securities laws or figure out the Tel Aviv Stock Exchange where TEVA's shares were born. But remember, as with all ADRs, TEVA ADRs are not immune to currency risk and country risk.

Wrapping Up

In a world where finance has no borders, having a piece of the international pie is not just a smart move, it's essential. ADRs provide a hassle-free ticket to foreign investments, enriching your portfolio with a dash of global flavor. Whether it's a slice of TEVA or another ADR, here's to exploring the vast opportunities that the world's markets have to offer!