Disadvantages of Global Depositary Receipt
1. Regulatory Compliance: GDR issue requires to meet the regulatory needs of all the position countries. This may be a complicated process which may have additional costs to companies.
2. Currency Risk: Investors’ GDR values would vary due to changes in exchange rates. The potential source of risk is the currency factor whereby if the GDRs are denominated in an alien currency, currency issues may rise as a concern.
3. Dependence on Depositary Banks: The function of depositary banks includes depository management and issuance trading of GDRs among others for the companies issuing of these instruments. The GDR program is influenced by depositary issue.
4. Limited Voting Rights: GDR holders are likely to deprived of their voting rights with reference to the development of the company’s decision-making processes due to which they would have restricted or no voting rights. However, the inability to have direct influence can be a weakness for active investors looking for active participation in corporate governance.
5. Market Risks: The prices of GDR can also be influenced by the market sentiments, geopolitical occurrences and other external force. At the investors end, they should be cautious of these risks, monitor the status of the market and accordingly adjust their strategies.
6. Complexity for Investors: Retail investors may be less aware of the GDRs, and to understand the process of following trade with them and the risks entailed may take further intervention.
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