What can influence the amount of dividends received by ADR holders?

What can influence the amount of dividends received by ADR holders?

• A. Market improvements in foreign stocks
• B. The conversion rates of currencies at the time of receipt
• C. The stock price of US companies
• D. The amount of call risk associated with the ADRs

Answer: (B)

The amount of dividends received by American Depository Receipt (ADR) holders can indeed be influenced by the conversion rates of currencies at the time of receipt. ADRs represent shares of a foreign company traded on U.S. exchanges, and dividends paid by foreign companies are received in the local currency of those companies. When the dividends are converted to U.S. dollars for distribution to ADR holders, the exchange rate at that time plays a crucial role in determining how much actual cash the holder receives. For instance, if the foreign currency strengthens against the U.S. dollar, ADR holders will receive a larger dollar amount in dividends after conversion. Conversely, if the foreign currency weakens, the dollar amount will be lower. Therefore, fluctuations in currency exchange rates can significantly impact the dividends received by ADR holders, making this option the most relevant in the context of how dividend amounts can vary for these securities.

The amount of dividends received by American Depository Receipt (ADR) holders can indeed be influenced by the conversion rates of currencies at the time of receipt. ADRs represent shares of a foreign company traded on U.S. exchanges, and dividends paid by foreign companies are received in the local currency of those companies. When the dividends are converted to U.S. dollars for distribution to ADR holders, the exchange rate at that time plays a crucial role in determining how much actual cash the holder receives.

For instance, if the foreign currency strengthens against the U.S. dollar, ADR holders will receive a larger dollar amount in dividends after conversion. Conversely, if the foreign currency weakens, the dollar amount will be lower. Therefore, fluctuations in currency exchange rates can significantly impact the dividends received by ADR holders, making this option the most relevant in the context of how dividend amounts can vary for these securities.