If you own shares of stock in a foreign company, you may own an American Depository Receipt, or ADR. Issued by U.S. depository banks and brokerage firms, these financial instruments originally were introduced in 1927 as a way to provide investors with a simpler way to purchase foreign stock from countries with different currencies and prices. Generally, U.S. banks purchase a large of number of shares in a foreign company and then reissue them on the New York Stock Exchange (NYSE) or other market. Individuals can purchase ADRs through brokerage firms.

Each ADR represents one or more shares in a foreign corporation. The price of an ADR corresponds to the price of the stock in the foreign market where the company is located, and is adjusted to reflect the ratio of ADRs to the stock shares in the foreign company. For example, a ratio of 3:1 means that one ADR represents three shares in the foreign company. While you can purchase the foreign stock that the ADR represents, most investors tend to hold onto the ADR, which is the actual instrument that is traded in the market.

ADRs can help investors save money by lowering administrative costs and eliminating the need to pay duties on each transaction. Investing in ADRs can carry some risk, however, because they can be affected by economic and other conditions in the country where the company is located. However, they also can provide investors with the opportunity to capitalize on growth in emerging markets. For more information on how to evaluate risks associated with investing in ADRs, and how to invest in foreign companies and markets, you can visit www.investopedia.com or www.sec.gov.