The pros and cons of ADRs

Article Excerpt

An American depositary receipt (ADR) is an investment unit for foreign companies that trade on a U.S. stock market, like Toyota and Honda. These units can represent fractions of shares, whole shares or multiple shares in the foreign firm. ADRs can help you simplify your international investing by letting you buy foreign shares on U.S. exchanges and avoid the complications of buying or selling on a foreign exchange in a foreign currency. ADRs can also help you cut risk, because they must follow some U.S. Securities and Exchange Commission and New York Stock Exchange rules. However, Canadian investors need to take extra care. Holding ADRs outside of a registered account, like an RRSP, will expose you to dividend withholding taxes. If you hold ADRs inside an RRSP, the withholding tax depends on whether Canada has a tax treaty with the country where the underlying company is based. based…

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