Wesfarmers Ltd is an Australian corporation listed on the ASX. Wesfarmers wishes to raise additional equity in the USA, but is not dual-listed on the NYSE. The companys financial advisers suggest the company approach the Bank of New York Mellon to arrange an issue of American depositary receipts (ADR).

A. Explain the existence and operation of the ADR market. Demonstrate in your answer how a foreign company might raise funds in the US capital markets through an ADR issue.

B. What are the risks associated with this kind of arrangement?