Hedging against foreign currency risk - Page 2
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Thread: Hedging against foreign currency risk

  1. #11
    Senior Member
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    Jun 2016
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    MER doesn't show the full cost of hedging, instead look at total return.
    Agreed! Would never buy hedge ETF... I also noticed that in a bad times US$ is going up vs CDN$, investing into USD$ equities is hedge by itself


  2. #12
    Senior Member
    Join Date
    Jan 2015
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    220
    A few years ago when the Canadian dollar was at par with US dollar, I bought Enbridge US$ rate reset preferred shares. This was done to help pay for fixed expenses in US$ related to ownership of a condo in Arizona. While the market value of these shares dropped significantly in the past year, it has now increased due to the increase in interest rates. An interesting feature is that the reset is based on US 5 year bond rate which is higher than the Canadian rate. Since the dividend payments are from a Canadian corporation, they qualify for the dividend tax credit. Also no form 1135 issues.

  3. #13
    Senior Member humble_pie's Avatar
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    Jun 2009
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    11,670
    there's FXC, an ETN that seeks to reflect the value of the canadian dollar as expressed in USD. Closed friday at 74.06.

    FXC has options, so a party could hedge USD by continuously purchasing puts or by setting up some kind of option spread.

    however a glance at the FXC option tables shows low open interest in any of the options, which suggests that institutions are not regularly playing in FXC.

    would i, myself, hedge with FXC options or any other kind of FXC position? absolutely not, it's far too expensive. If an investor is that afraid of currency fluctuation, then perhaps it's fair to say he should not buy US securities in the first place.

    otherwise, merely owning some US securities - preferably in an RRSP so their dividends will flow without NR withholding tax - is a reasonable enough hedge in itself, imho.

    .


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