Trending Content - Sales and Trading Forum
Career Resources
WSO Free Modeling Series - Now Open Through
November 30, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
They are similar to each other. Basically they are like a "tracking stock" that is a locally traded version of overseas traded shares.
Does the pricing of an ADR take into account exchange rate fluctuations? or is the rate pegged?
it reflects exchange differentials, otherwise there would be arbitrage.
arbitrage how? can you sell your ADR's to buy the real stock?
If ADRs did not acct for exchange rate differentials there will be an arbitrage senario.
Say you have a European company which has an ADR listing in the US. (and the ratio is 1:1). Further the EURUSD rate is 1.0000 and the price of the ADR on NYSE is 50 and in Europe its 50 as well.
If the price in Europe remains the same but the eurusd rate advances to 1.2000 then the price of the ADR should be 60 accounting for exchange rates. If, however, say the ADR is priced at 55 then you have an arbitrage opportunity as ADRs are convertible to their domestic counterparts. So you could convert your ADR's into their domestic stock for 45.83 euros and short the stock at the domestic market at 50 euros. You would also short the appropriate amount of eurusd spot to negate the currency risk in this arbitrage opportunity.
so you CAN convert ADR's into domestic... can you convert domestic to ADR's too?
Yes you can convert ADRs to domestic. However, it is NOT a rule that you can convert domestic to ADR. Some issues allow you to, others do not.
so there's only arbitrage opportunities if the ADR is undervalued, not if the domestic is undervalued... right?
I am not a 100% sure of this. I am certain that firms would take action to prevent gross mispricing which would mean arbitrageurs would pile in both ways. Generally only market makers would have the speed necessary to take advantage of such positions. I read a paper somewhere (can't remember the title) which found very few arb opps in the market. You might want to track that down (try Google/Google Scholar) as that would give more info.
American Depositary Receipts (Originally Posted: 07/16/2008)
Just wondering if anyone has anymore information on how the ratios are set. This is for standard international equities.
Thanks
Illo eos aut est dolorum voluptatum qui soluta voluptas. Ducimus unde eum provident impedit. Aut omnis non accusamus eum iusto molestiae dolorem. Rerum sed aut maxime fugiat. Omnis aperiam optio dicta distinctio nesciunt. Quo harum nihil mollitia ut qui aspernatur. Error odit odit magnam ipsum beatae.
Ratione quod quas nihil beatae voluptas officiis. Qui et dolore unde error sequi. Inventore tempore enim culpa cupiditate.
Inventore ad et reiciendis nostrum. Ut voluptatem error et quisquam non aliquid.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...