American Depository Receipt (ADR)

Ever noticed that some of the things you like aren't as American as apple pie? Thanks to the freedom of liquid international trade, the Internet, and a global economy, you can buy crap from all over the world. The same applies to investing. You can buy domestic stocks like Google, but if you want to buy shares in foreign companies you likely need American Depository Receipts (ADRs).

ADRs are bank certificates that represent ownership in shares of foreign companies. These stocks are sponsored by U.S. brokerage companies, and they can be bought and sold in the U.S. just like your favorite U.S.-based stocks. Example: Sony wants its shares to be traded everywhere it can—more buyers, more demand, higher-stock price (usually). So instead of just listing its shares on the Nikkei in Japan, Sony lists in the U.S. as well. How? Well, a bank or series of banks essentially buys its shares in Japan and then a nanosecond later turns around and sells them in the U.S. on, say, the New York Stock Exchange for some conversion price.

If they are 40,000 yen in Japan, they might be $28ish in the U.S. Note the subtle issue here: not only are investors buying shares in a foreign company, but they are buying the shares with dollars...and the U.S. investors buying these shares really only care about dollars. So if the yen goes the wrong way and Sony stock doesn't go up to accommodate for it, U.S. investors get doubly hosed.