An ADR facilitates which of the following?

Prepare for the Canon Financial Institute CFIRS Exam with flashcards and multiple choice questions. Each question comes with hints and explanations for better understanding. Get ready to excel in your exam!

An American Depositary Receipt (ADR) serves as a mechanism that allows U.S. investors to invest in shares of foreign companies without having to deal with the complexities of foreign stock exchanges. When holding an ADR, investors can benefit from the economic growth of companies based outside the U.S. while still trading in U.S. dollars and using the familiar U.S. financial infrastructure.

The structure of an ADR simplifies the investment process by allowing shares of foreign companies to be represented in U.S. markets, making it easier for investors to diversify their portfolios across international borders. This is particularly beneficial for U.S. investors who want exposure to global markets without the complications of currency exchange and different regulatory environments that accompany direct foreign investments.

In contrast, foreign investments in the U.S., investments in foreign securities by foreign investors, or U.S. investments in U.S. securities do not describe the primary function of ADRs, which is specifically to facilitate U.S. investments in foreign securities. Thus, option B accurately reflects the essence of what ADRs do.

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