Final answer:
ADRs are denominated in U.S. dollars, not the home country's currency, enabling easy access for U.S. investors to foreign stocks and allowing non-U.S. firms to raise capital in the U.S., sometimes leading to arbitrage opportunities.
Step-by-step explanation:
The query 'which of the following is NOT true regarding ADRs?' pertains to American Depositary Receipts (ADRs), which are financial instruments used by non-U.S. companies to list their shares on American stock exchanges. The correct answer to the question is that option 1 is NOT true; ADRs are actually denominated in U.S. dollars, not the currency of the stock's home country. This facilitates trade for U.S. investors, as it allows them to invest in foreign stocks without the complexity of dealing with cross-border transactions and currency conversions. ADRs indeed enable U.S. investors to avoid cross-border transactions (option 2) and allow non-U.S. firms to tap into the U.S. market for funds (option 3). Regarding option 4, it is true that ADRs can sometimes create arbitrage opportunities due to the differences in the stock price in the home market and the U.S. market.