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I'm Canadian and paid in $US funds. Advice?

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  • May 4th, 2012 9:43 pm
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Member
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Dec 11, 2009
229 posts
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I'm Canadian and paid in $US funds. Advice?

Hi,

I sell goods online and I'm paid in US$ (no other option). It's my only source of income and a large amount. I live in Canada and do not travel to the US.

As you can imagine, the current exchange rate is killing me. I'm depositing money into my TD US$ chequing account and I have no idea what to do with the funds (building by a lot each month). I want to start investing, but I'd have to exchange it to Canadian and wouldn't that negate most of the interest I would get?

Any advice? :)

Thanks.
8 replies
Jr. Member
Nov 28, 2010
171 posts
39 upvotes
Hi there LionheartMG. My name's Chris and I work for TD. We'd be happy to review your investment options with you. Please give us a call.
Deal Addict
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Jun 23, 2009
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YUL
I'm in the same position, basically I write it off as a cost of doing business and keep a minimal balance in my CDN account. I also use a TD Borderless account.
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Sr. Member
Feb 1, 2010
872 posts
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Well, for me, I deposit my American dollars in my BMO Investorline account as USD. I buy Canadian companies on the US Exchange in USD and have them journaled to my CDN side (Ie, buy RIMM and have it transferred to RIM). Then when I sell or receive dividends, I get CDN dollars with no exchange fees at all. This is basically a version of Norbert Gambit, but in reverse.
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Mar 20, 2009
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Vancouver
You can invest your US$ in US$-denominated investments without exchanging it to Cdn$. Many Canadian banks and investment fund managers offer US$-denominated investments. The problem with this is that you then effectively become a long-term currency speculator on the future exchange rate of the US$. That's maybe not a good idea if you live in Canada, have most of your expenses in Cdn$, and you aren't a professional currency speculator.

The Norbert Gambit (and variations on it) as mentioned by Quatchi is a good way to exchange investments between currencies at very low cost, but it involves several steps and some complexities.

If you want to do just a straight exchange, don't use a bank (at least not without getting competitive quotes for larger amounts). If you are exchanging $10,000 or more you can get much better rates using professional FX traders, usually within 0.5% of mid-rate. Set up an account with the FX trader, and they will do an exchange transaction for you directly to and from your regular US$ and Cdn$ bank accounts with just a phone call. I've used Cambridge Mercantile and Firma, but you'll find many others mentioned here on RFD if you search. Be sure to get competitive quotes.
Deal Addict
Aug 17, 2008
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JamesA1 wrote: You can invest your US$ in US$-denominated investments without exchanging it to Cdn$. Many Canadian banks and investment fund managers offer US$-denominated investments. The problem with this is that you then effectively become a long-term currency speculator on the future exchange rate of the US$.

This is a common misconception and not correct. Currency risk relates to the underlying business, NOT to the currency in which the investment is denominated. Now granted, mutual funds that are offered in Canada on a US$ or CAD$ denominated basis are typically non-Canadian, so there is underlying currency risk in the businesses that you invest in, but it has absolutely nothing to do with the currency of denomination.

To explain why, consider Quatchi's example of buying Research in Motion stock (I won't comment on the investment merits).
-- the closing price in US$-demoninated (RIMM on NASDAQ) was $12.01 USD
-- the closing price in CAD$-denominated verstion (RIM on TSX) was $11.96 CAD
the two have exactly the same value. (today's exchange rate $1 CAD = $1.0045 USD according to Bank of Canada) this must always be true within a small tolerance as arbitrageurs will ensure the prices on the two exchanges are always consistent when currency is considered.

Suppose you decide to buy RIMM on NASDAQ for $12.01 USD. You have no additional currency risk versus someone who purchase RIM in $CAD at $11.96 on the TSX. Why? Suppose the Canadian denominated stock goes up by 10% to $13.16 CAD, and the $USD drops to $1 USD = $0.90 CAD. Then that RIMM stock would trade at $14.82 USD on NASDAQ, and if you held it in USD, you could sell and convert the $14.82 USD to $13.61 CAD.

You can do the same example with other individual stocks that are interlisted (e.g. Barrick, which can be purchased in CAD or USD, but has operations mainly outside North America), or for mutual funds offered in Canada on either USD denominated or CAD denominated basis. Currency risk is based on the underlying business, not on the currency in it happens to be denominated in.

Quatchi's approach is a reasonable option, as indicated, you effectively convert with no FOREX Commission, and future dividends are paid in CAD. But buy the stock because you like it, not because it is interlisted.
Sr. Member
Feb 1, 2010
872 posts
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Yes, I used RIM as an example and because it tied into another of the OPs threads.
Member
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Dec 11, 2009
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Interesting, thank you for the stock information.

Turning my attention to other, more simple investments for the moment: "You can invest your US$ in US$-denominated investments without exchanging it to Cdn$. Many Canadian banks and investment fund managers offer US$-denominated investments."

Does this mean TSFAs and RRSPs? So I can have a US$ fund TSFA at a Canadian bank?

I had looked a little into contributing to a CDN$ TSFA. First I checked my current bank's interest rate, TD - 1.15%. So let's say I wanted to max it out for the year, $5000. I'd need to take from my US funds to get that $5000 total CDN. At the current exchange rate of this post (TD Borderless), $1.00 USD = $0.9775 CAD. I'd need $5,115.09 USD. So $115 lost.
If I understand correctly, the 1.15% rate on the $5000 would net me $75 for a year.

Am I right in thinking that is a bad idea and not worth it for me?

But if I can get a US$ fund TSFA, that'd be interesting. Where should I look into this? Would visiting with an advisor at my bank be a good idea?

Thanks.

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