With reference to Depository Receipt DR consider the following statements 1 It is a financial instru...........

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With reference to Depository Receipt (DR), consider the following statements:

1. It is a financial instrument issued by a company in its domestic market.

2. It is issued for tapping foreign investors who may not be able to participate directly in the domestic market.

3. It is denominated in a foreign currency.

Which of the statements given above is/are correct?

1 and 3 only

2 and 3 only

2 only

1, 2 and 3

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Explanation:

Statement 1 is not correct. A Depository Receipt (DR) is a financial instrument representing certain
securities (eg. shares, bonds etc.) issued by a company/entity in a foreign jurisdiction.
o Statement 2 is correct. DRs constitute an important mechanism through which issuers can raise funds
outside their home jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be
able to participate directly in the domestic market. It is perceived as the beginning point of connecting
with the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock
exchange) or a way of introducing the company to a foreign investor. For investors, depository receipt is
a way of diversifying the risk, by getting exposure to a foreign market, but without the exchange rate risk
as they are foreign currency denominated. Further, they feel more safe to invest from their home
location.
o Statement 3 is correct. Depository Receipts are a foreign currency denominated instrument.