Which of the following best describes American Depository Receipts (ADRs)?

American Depository Receipts (ADRs) are investment instruments that enable U.S. investors to buy shares in foreign companies without dealing with the complexities of foreign stock exchanges. ADRs represent shares of a non-U.S. company and are traded on U.S. exchanges. They provide a way for investors to gain exposure to international companies while benefiting from the familiarity of U.S. market regulations and currency.

Describing ADRs as common stock is accurate because, while they may represent shares of a foreign entity, they are structured and priced similarly to common stocks traded on U.S. exchanges. They typically come without the risk of being called away, which is a characteristic associated with debt securities or certain types of preferred shares. This makes option B a fitting description of ADRs, as it highlights their role as common equity investments in the context of international trade.

The other descriptions don't accurately capture the nature of ADRs. Debt securities with high interest risk would not apply, as ADRs are equity instruments. The mention of preferred stock from foreign companies is also misleading since ADRs do not selectively represent only preferred shares. Lastly, penny stocks are typically low-priced shares, often characterized by their market volatility and lower trading volume, which does not reflect the range of companies