SIE practice questionmediumADR Risks
An investor who purchases ADRs is exposed to all of the following risks EXCEPT:
- AElimination of all market risk through diversification✓ Correct answer
- BCurrency exchange risk
- CDifferences in accounting standards and financial reporting
- DPolitical risk in the foreign country
Explanation
Why A — Elimination of all market risk through diversification
ADRs do NOT eliminate market risk. ADR investors face currency risk (dividends paid in foreign currency are converted to USD), political risk in the issuer's home country, and may encounter different accounting and disclosure standards. International diversification can reduce some risk but does not eliminate market risk entirely.
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