ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore, arbitrage cannot keep the prices in line with the foreign price of the stock.

Question

Quizplus · Accepted Answer

ADRs can be exchanged for the underlying shares of the foreign stock, and arbitrage can help keep the prices in line with the foreign price of the stock. However, the process of exchanging ADRs for foreign shares can incur transaction costs and may not always be feasible for small investors.

ADRs Cannot Be Exchanged for the Underlying Shares of the Foreign