What is a depository receipt? Discuss the benefits of depository receipt as a means of funding of mergers and takeovers.

A Depositary Receipt (DR) is a negotiable certificate issued by a bank representing shares in a foreign company traded on a local stock exchange. The depositary receipt gives investors the opportunity to hold shares in the equity of foreign countries and gives them an alternative to trading on an international market. A Depository Receipt is a foreign currency denominated instrument tradeable on a stock exchange generally in Europe or U.S.A. The major benefit of using Depository Receipt as a means of funding for mergers are The collection of issue proceeds in foreign currency which may be utilized for meeting foreign exchange component of project cost, repayment of foreign currency loans, meeting commitments overseas and similar purposes. The GDR investor does not have to bear any exchange risk as a GDR is denominated in US dollar with equity shares comprised in each GDR denominated in Rupees. The investor reserves the right to exercise his option to convert the GDR and hold the equity shares instead. It facilitates raising of funds of market related prices of minimum cost as compared to a domestic issue and permits raising of further equity on a future date for funding of projects like expansion or diversification through mergers and takeovers etc. It also helps to expand investor base with multiple risk preferences, improves marketability of the issue, and enhances prestige of the company and credibility with international investors.