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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Equity Securities questions
- An investor owns 100 shares of stock and there are 3 board seats up for election. Under cumulative voting, how many…
- What is an American Depositary Receipt (ADR)?
- An investor holds convertible preferred stock with a conversion ratio of 4:1 (4 shares of common for each preferred…
- How do warrants differ from stock rights?
- Which of the following statements about common stock dividends is correct?
- Which statement about stock rights (subscription rights) is TRUE?
- A callable preferred stock is MOST likely to be called by the issuer when:
- In a corporate liquidation, which of the following has the HIGHEST priority claim on assets?