Question : Case Study: PQR Enterprises - Funding Strategies for Diversification
PQR Enterprises is a well-established conglomerate planning to diversify its business operations. The company is evaluating various sources of business finance to support its diversification plans.
Questions : Debentures and Financial Instruments
How do GDRs and ADRs serve similar functions?
Option 1: Both are used to raise funds from domestic markets
Option 2: Both are forms of equity shares
Option 3: Both represent ownership in a company
Option 4: Both enable companies to raise funds in international markets
Correct Answer: Both enable companies to raise funds in international markets
Solution : The correct answer is (d) Both enable companies to raise funds in international markets
GDRs (Global Depositary Receipts) and ADRs (American Depositary Receipts) serve similar functions in that they both allow companies to raise funds in international markets. GDRs are negotiable financial instruments issued by a depositary bank, typically in a country other than where the issuing company is based. They represent a claim to shares in a foreign company and are traded on international stock exchanges. GDRs enable companies to raise capital from investors in international markets.
ADRs are a specific type of GDR that represents shares of non-U.S. companies traded on U.S. stock exchanges. They make it easier for non-U.S. companies to attract investment from American investors by facilitating trading of their shares in the U.S. financial markets.
Both GDRs and ADRs play a crucial role in allowing companies to access international capital markets and attract investment from a broader investor base outside their home countries.
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