What is the full form of GDR?

The full form of GDR is “Global Depository Receipt”. A GDR is a financial instrument that allows investors to hold shares in overseas corporations that are deposited and traded on worldwide marketplaces. In a nutshell, it allows foreign enterprises to raise funds and grow their investor base beyond the confines of their original country.

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How does it work?

A foreign firm can issue GDRs through a depository bank to gain access to international capital markets. These GDRs are backed by actual firm shares held by the depository bank in its home country. The depository bank then creates GDRs in a variety of denominations. It also allows them to be easily traded on worldwide stock exchanges.

Types of GDRs:

1. Sponsored GDR: In this case, the issuing corporation creates and manages the GDR programme in collaboration with a depository bank. The organization also verifies that the target stock exchange meets the listing standards.

2. Unsponsored GDR: A depository bank initiates unsponsored GDRs with no direct involvement or authorization from the issuing enterprise. Market demand generates these GDRs, and the issuer may or may not cooperate in their creation.

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Advantages of GDR:

1. Global Capital Access: GDRs allow foreign enterprises to raise funds from overseas investors without having to go through a domestic initial public offering (IPO). This broadens their capital base and increases their financial flexibility.

2. Diversification Opportunities: GDRs allow investors to diversify their portfolios geographically by investing in overseas companies without having to deal with the complications of buying shares on foreign exchanges.

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Conclusion

Hence, the full form of GDR is Global Depository Receipt. This financial instrument has evolved into an important tool in the global financial environment, allowing enterprises to access foreign capital markets and investors to diversify their holdings abroad. With their numerous advantages, GDRs continue to encourage cross-border investment, thereby promoting a more linked and dynamic global economy. However, as with any investment, both corporations and investors must undertake extensive study and seek expert counsel before entering the world of GDRs.

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