What is Global Depositary Receipt ?

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A Global Depositary Receipt (GDR) is a financial instrument that allows a company's shares issued in one country to be traded on securities markets in another country. GDRs are issued by a depositary bank and represent a certain number of shares of the company in its home market. Investors who purchase GDRs indirectly own shares in the foreign company and can benefit from dividends and capital appreciation.Key characteristics include:Cross-Border Trading: GDRs enable companies to raise capital in international markets, and investors can buy and trade them on different securities exchanges.Depositary Bank: Issued and managed by depositary banks (such as Citibank, JPMorgan Chase), which hold the actual shares and issue corresponding depositary receipts.Simplified Investment: Provides investors with a simplified way to indirectly invest in foreign company shares without the need to open a trading account in the foreign market.Liquidity: Enhances the liquidity of the shares, allowing the company to attract more international investors.The issuance process of Global Depositary Receipts:Company Authorization: The company authorizes a depositary bank to issue GDRs.Share Deposit: The company issues shares in its home market and deposits them with the depositary bank.Receipt Issuance: The depositary bank issues a corresponding number of GDRs based on the deposited shares.Market Trading: Investors buy and trade GDRs on international securities markets.A global depositary receipt is very similar to an American depositary receipt (ADR) except that an ADR only lists shares of a foreign company in U.S. markets.

Definition

A Global Depositary Receipt (GDR) is a financial instrument that allows a company's shares issued in one country to be traded on the securities market of another country. GDRs are issued by a depositary bank and represent a certain number of shares of a company issued in its home market. By purchasing GDRs, investors can indirectly hold shares of foreign companies and benefit from dividends and capital appreciation.

Origin

The concept of Global Depositary Receipts originated in the 1960s to help companies raise funds in international markets. Initially, GDR issuances were concentrated in European markets, but with globalization, GDRs have become a crucial tool for multinational companies to access international capital markets.

Categories and Features

The main features of GDRs include cross-border trading, issuance and management by depositary banks, simplified investment, and enhanced liquidity. Cross-border trading allows companies to raise funds in international markets, depositary banks (such as Citibank, JPMorgan) are responsible for issuing and managing GDRs, simplified investment provides investors with an indirect way to invest in foreign companies, and enhanced liquidity helps companies attract more international investors.

Case Studies

Case 1: Alibaba Group listed on the Hong Kong Stock Exchange through GDRs in 2019, raising approximately $13 billion. This move not only increased Alibaba's international visibility but also provided it with more capital to support global expansion.

Case 2: Swiss pharmaceutical company Novartis listed on the London Stock Exchange through GDRs, attracting a large number of European investors. This strategy helped Novartis expand its investor base and increase the international liquidity of its shares.

Common Issues

Investors using GDRs may encounter issues such as exchange rate risk, market volatility, and legal and tax issues. Investors should understand the legal regulations related to GDRs and consider the impact of exchange rate fluctuations on investment returns.

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Interest Rate Swap

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