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Question

Explain the following source of business finance :

(i) ADR

(ii) Trade Credit

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Solution

(i) American Depository Receipt (ADR) : It is a negotiable security that is issued in the US by a non-US company to raise funds in foreign currency (American Dollars) and is listed and traded in stock exchange of USA.

(ii) Trade Credit : It refers to the credit provided by one firm to another for the purchase of goods and services. It is a source of short-term finance and facilitates the purchase of goods and services without immediate payment. Its advantages are :

(a) It promotes the sales of an organization.

(b) It is a continuous and convenient source of funds.

(c) It does not create any charge on the assets of the business.


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