What is the difference between GDR and ADR? Explain.
Global Depository Receipts (GDRs) are negotiable instruments denominated in US dollars issued abroad by a company to raise funds in foreign currency. They are listed and traded on foreign stock exchanges. Holders of GDRs enjoy dividends and capital appreciation but do not carry voting rights.
American Depository Receipts (ADRs) are depository receipts issued by a company specifically in the USA. These are bought and sold in American markets like regular stocks and are listed on a stock exchange of the USA.
The main difference is that while GDRs are issued globally, an ADR is similar to a GDR except that it can be issued only to American citizens and is traded specifically on USA stock exchanges.
Explanation
The answer is derived from the definitions provided in the context. GDR is defined as an instrument issued abroad to raise funds in foreign currency, whereas ADR is defined as receipts issued in the USA. The text explicitly states the difference: 'It (ADR) is similar to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.'
Solution Steps
Step 1: Define Global Depository Receipts (GDR) based on the provided text (issued abroad, foreign currency, listed on foreign exchange).
Step 2: Define American Depository Receipts (ADR) based on the provided text (issued in USA, traded in American markets).
Step 3: Identify the specific differences mentioned in the text: ADRs are restricted to American citizens and USA stock exchanges, whereas GDRs have a broader global context.