Series 7 practice questionmediumEquity Securities — ADRs — Dividends
Dividends paid on ADRs are typically:
- APaid in US dollars after conversion by the depositary bank✓ Correct answer
- BPaid in the foreign currency of the underlying shares
- CNot paid at all, since ADRs do not convey dividend rights
- DPaid only to institutional investors
Explanation
Why A — Paid in US dollars after conversion by the depositary bank
When the foreign company pays dividends, the depositary bank receives them in the foreign currency, converts them to US dollars, and distributes them to ADR holders. The depositary bank may deduct a fee for this conversion service. ADR holders are also subject to foreign withholding taxes on dividends, though they may claim a tax credit or deduction on their US tax return.
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