JAIIB LRAB – ADR AND GDR
Today in this article, we will cover the topic of ADR and GDR from the syllabus of JAIIB LRAB study material 2024.
The JAIIB EXAM is held by the Indian Institute of Banking and Finance (IIBF) to help bankers and finance professionals stay ahead of the pack in a challenging market. Junior Associate of the Indian Institute of Bankers (JAIIB) is a term that refers to a junior member of the IIBF. This flagship course/examination is divided into three papers which are PPB, AFB, and LRAB, each of which is divided into modules and chapters. This online exam is open to members of the institute and staff of certain nationally recognized banks. A banker’s entire understanding of day-to-day operational and technical principles is tested twice a year in the biannual examination of JAIIB 2024.
ADR
Most overseas firms that trade in the United States use American Depositary Receipts (ADRs) to change their equities (ADRs). Depositary banks in the United States issue these stocks. Each ADR represents one or more foreign equity shares or a portion of one or more foreign equity shares. If you own an ADR, you have the option to acquire the foreign stock that it represents, but most U.S. investors choose to own the ADR. The price of an ADR is the same as that of a foreign stock in its home market, minus the ADR-to-foreign-company-share ratio.
ADRs traded on the New York Stock Exchange are divided into two types:
ADR that has been sponsored and ADR that is not funded.
Sponsored ADR:
In a sponsored ADR, a foreign firm that wants to offer stock to the public agrees with a US Depository bank to sell stock on the US capital market.
The US depository bank is responsible for the selling and distribution of shares to the general public, as well as record-keeping and dividend distribution. Sponsored ADRs are traded on American stock markets.
The Securities and Exchange Commission (SEC) regulates US stock exchanges. It works as a watchdog for the necessary compliances that must be followed when dealing with US stock exchanges and instruments.
Non-sponsored ADR:
Brokers and dealers construct non-sponsored ADRs without the assistance of a foreign corporation. These ADRs are sold over the counter and do not require registration with the Securities and Exchange Commission (Securities and Exchange Commission)
The following are some of the benefits of ADR:
- An American investor can invest in any international company, increasing his or her chances of making a profit.
- Foreign corporations can register on the New York Stock Exchange and increase their earnings and capital.
- Currency fluctuations can be advantageous to businesses.
- ADRs are a simple way to participate in the US market.
- The cost of ADRs in the US capital market is lower, making them a more appealing option for investors.
GDR
A Global Depository Receipt is a tradable instrument denominated in another currency. Indian corporations can use a GDR to trade their equities on marketplaces other than the New York Stock Exchange. A foreign depository issues a depository receipt for an Indian corporation.
Depository receipts are traded like stocks on that country’s domestic exchange. As a result, investors can buy and sell the shares just like any other stock.
The Depository Bank is a third-party intermediary that holds the Indian company’s shares as a custodian. As a result, GDR helps Indian companies gain access to global financing.
Features of GDR:
- It’s a freely tradable instrument that can be exchanged like any other security.
- Indian companies with a three-year financial track record are granted easy access to global financial markets through a GDR. Clearances from the Foreign Investment Promotion Board (FIPB) and the Ministry of Finance are required.
- GDRs are issued to investors all over the country because they can be denominated in a variety of freely convertible currencies.
- The GDR can be denominated in any foreign currency, but the underlying shares will be in the issuer’s local currency.
- On the value of the shares underlying the GDR, the holder is entitled to dividends and bonuses.
- Through a local custodian, the investor can convert GDR into equity shares and sell the shares mentioned in the GDR. After 45 days from the issue date, this provision might be applied.
- In a GDR, the issuing company conducts all of its business with a single entity.
JAIIB STUDY MATERIAL
IIBF LEARNING CENTER & IIBF.INFO provides JAIIB CLASSES 2024 and notes for all the subjects, including PPB (Principles and practices of banking), AFB (Accounting and finance for bankers), and LRAB (Legal and regulatory aspects of banking). We have formulated our notes in such a way that you won’t have to spend long hours on various sources and books. We have come up with this STUDY MATERIAL after putting in so much effort so that we could help you all with your preparation for the JAIIB EXAM.
The courseware for the paper on Legal and regulatory Aspects of Banking focuses on legal and regulatory issues that affect banking operations and is weaved into the units/chapters to make their importance clear. Banking and business laws, in so far as they apply to day-to-day banking activities, have also been addressed. Wherever possible, case laws are included. Though the STUDY MATERIAL is geared toward banking professionals and those preparing for the JAIIB and Diploma in Banking & Finance exams, it will also be valuable to anyone interested in learning more about banking laws and legal elements of banking practices in India.
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