Daily Archives: April 28, 2011

What are ADR and GDR?


American Depositary Receipt (ADR)

ADR is method of trading non-U.S. stocks on U.S. exchanges

Suppose, Indian Co. wants to raise money from America, by issuing shares in American stock exchange.

But then Indian co. will have to maintain accounts according to American standards.

To prevent this problem, Indian company gives its shares to American bank.

American bank gives that Indian company receipts (called ADR) in return of those shares. Then Indian Co. can trade those ADR receipts in American share market, to raise money.

Global Depository Receipts (GDR)

Serve as same function like ADR, but on Global scale, it helps the countries from third world, to raise money from the stock exchanges in developed countries.

Several international banks issue GDRs, such as JPMorgan, Citigroup, Deutsche Bank, Bank of New York.

Normally 1 GDR = 10 Shares, but not always.

##As described by Mrunal

CDS : Credit default swaps


In simplest form Its buying insurance against a default.

Example

I’m a banker, gave car-loans to dude, but I’m afraid he might not pay back the full money. So I’ll goto some other Bank X who sells Credit default Swaps (CDS).

I’ve to pay regular premium Bank X, but if someday that dudes default on his car-payment, Bank X will pay me the money.

RBI is currently drafting rules for starting a CDS market in India.

These CDS bonds, once issued, can be sold and bought like any other bond or security but only thing is that they are not regulated.

i.e. Bank X sells my CDS to Bank Y. So now Bank Y gets my premium but in case of default by that Dude, Bank Y is supposed to pay me.

# As described by Mrunal

Related Articles 

Related articles