Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Different Sources of Finance
Assertion: American Depository Receipts (ADRs) allow foreign companies to raise funds in international markets.
Reason: ADRs are only issued by American companies in the United States.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer:
Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Solution : The correct answer is (a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.
The assertion is true. ADRs are financial instruments issued by a depositary bank representing shares of a foreign company. These ADRs can be traded and raise funds in international markets, allowing foreign companies to access a broader investor base.
The reason is true and is the correct explanation of the assertion. ADRs are indeed issued by depositary banks in the United States and represent shares of foreign companies. They allow these foreign companies to have their shares traded in the U.S. markets, facilitating access to American investors and international capital.
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