Advantages and disadvantages of global depositary receipt
Advantages and disadvantages of global depositary receipt
Any depositary receipt is a certificate which best describes the ownership of stocks of particular company which is marketed outside the home country of the company. These documents are useful in fetching greater amount of capital for the company in many other countries. It is nothing but the stocks or shares on the exchanges which provides access to anybody irrespective of the country which he lives in. By buying a depositary document the purchaser need not bother about the currency, orientation of the company, or the language spoken in that country. He is privileged to hold the share of the company existing in any part of the world.
Global depositary receipt (GDR) allows you to buy the shares of the company located outside United States and also outside the home country of the particular company. Irrespective of the currency of the home country, most of the GDR's are purchased in United States dollars. Usually you can see more than 800 GDR listed on the stock exchange where the stocks belonging to different companies are sold out.
Advantages: GDR allow the investors to hold share in foreign companies without bothering about their accounting practice, laws or any other rules. It facilitates easy trading method since in the global market you can buy shares or sell it using dollars and the stock market offerings are listed out in English. Another important advantage in buying GDR is you can buy them even you are restricted by any investment objective which prevents you from buying stocks of foreign companies.
GDR does not impose any limit to the buyer and thus you are privileged to buy as many stocks of any foreign company. You need not pay any transfer taxes if you buy GDR or else you should pay local taxes when you purchase any foreign company's share directly.
One disadvantage in buying global depositary receipt is you must pay the currency conversion if you are buying shares of the company outside America, since GDR exists usually in US dollars.