Saturday, 5 August 2017

Buying USD the professional way

With the recent surge in the Canadian currency against the US greenback, I consider this an opportunistic time to purchase US currency for your trip to the U.S. or for investment purposes i.e. buying U.S. listed stocks. The following charts illustrate the most cost effective way by using Horizon USD ETF. Many thanks to prior threads discussing this option, but I actually executed the trade below using my TD Waterhouse account, purchasing US$10,000 and saved over C$200 over buying the US currency from the bank.  Here goes!

Buy DLR (Horizon ETF in C$) at Ask at 12.41 in my C$ account. Paid C$12,410 + 9.95 commission.

I called TD and ask them to journal the transaction over to the U.S account. It can be done since both the DLR and DLR.U share the same investment identification number. There is a charge of $29 since it ia broker assisted transaction.

Once the transaction has been journalized, I then sell short DLR.U (Horizon ETF in US$) at Bid 9.93 in my U.S. account.

To summarize, I ended buying USD/CAD at an effective rate of 1.2497 versus the spot rate of 1.2474 or a 23 basis point premium, which is pretty good. Most companies purchasing USD typically pay a premium of at least 10 basis point.  If I bought at a local bank without any preferential pricing, I would have to pay 1.2811, or a premium of 2.7%. The transaction works best for larger purchase. I illustrate a US$3,000 purchase as it is pretty much the break-even point.

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