Save Money with USD to CAD Foreign Exchange using Norbert's Gambit about:reader?url=https://www.milliondollarjourney.com/save-money-wit...

milliondollarjourney.com

Save Money with USD to CAD Foreign

Exchange using Norbert's Gambit
by FT on November 17, 2016
5-6 minutes

With the U.S Dollar (USD) gaining strength in the global currency game, it
has resulted in the Canadian Dollar (CAD) losing some ground. While this
means that shopping in USD is more expensive for Canadians, it’s great
news for those who have some of their nest egg or generate income in
USD.

While it’s a great time to own USD, how does someone convert USD to
CAD without getting gouged by the bank? The answer – Norbert’s Gambit.

I wrote an article about Norbert’s Gambit using the DLR and DLR.U ETFs
as a cheap way to convert CAD to USD. Basically you would

1. Buy the DLR ETF in CAD;

2. Ask the discount brokerage to journal your CAD DLR position to USD
DLR.U (usually by phone and free of charge, others are automatic); and,

3. Sell DLR.U in the US market.

Voila, you now have USD without the big FX fees (up to 2% of total
conversion). While the process may take up to 5 days to complete, there is
very little currency risk as your foreign exchange rate (FX) is locked in as
soon as you buy DLR. Here’s an article providing a little more detail on the
DLR/DLR.U conversion with Questrade.

Using DLR/DLR.U is a cost effective and low risk way to convert CAD to
USD, but not as great when converting from USD back to CAD. The

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reason is that going in reverse order, buying DLR.U and selling DLR,
exposes you to FX volatility. In other words, while waiting for your shares
to journal over (up to 5 days), the FX rate (ie. the value of DLR) can
changed dramatically.

So back to the question, how do we use Norbert’s Gambit to cost effectively

exchange USD to CAD with minimal risk? This strategy will allow FX at
around spot rate and involves;

Buying and selling highly liquid “inter-listed” stocks (ie. stocks listed on both
the TSX and NYSE); and,

Using a discount brokerage account that automatically journals (ie. moves)

shares between CAD and USD (RBC Direct Investing or BMO
InvestorLine). The automatic journaling of shares is an important feature
as it reduces the risk and amount of FX movement while you are holding
the shares.

Inter-listed Stocks

Here are a list of potential high volume, low bid-ask spread stocks that are
inter-listed on the TSX and NYSE(generated from TMX.COM). Personally,
I like using the big banks, the higher the share price, the better.

TSX/US Symbol Issue Name

AGU/AGU Agrium Inc.

BMO/BMO Bank of Montreal
BNS/BNS Bank of Nova Scotia (The)
BCE/BCE BCE Inc.
CM/CM Canadian Imperial Bank of Commerce
CNR/CNI Canadian National Railway Co.
CNQ/CNQ Canadian Natural Resources Limited
CP/CP Canadian Pacific Railway Ltd.
CVE/CVE Cenovus Energy Inc.
ENB/ENB Enbridge Inc.
ECA/ECA Encana Corporation

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IMO/IMO Imperial Oil Limited

MFC/MFC Manulife Financial Corporation
POT/POT Potash Corp of Saskatchewan Inc.
RCI.B/RCI Rogers Communications Inc. Cl B NV
RY/RY Royal Bank of Canada
SLF/SLF Sun Life Financial Inc.
SU/SU Suncor Energy Inc.
TCK.B/TCK Teck Resources Ltd. Cl B SV
TRI/TRI Thomson Reuters Corporation
TD/TD Toronto-Dominion Bank (The)
TRP/TRP TransCanada Corporation

Instructions on Converting USD to CAD

1. Using a BMO (BMO Investorline review) or RBC discount brokerage

account, buy an inter-listed stock (listed above) with high volume/liquidity
and with a low bid/ask spread. Since we are converting from USD to CAD,
buy the USD version of the stock at the “ask” price. You can also use this
trick for converting CAD to USD but you would do the opposite and buy the
CAD version of the stock. Lets use an example of buying RY on the NYSE
@ $72.83 USD (Nov 14, 2014).

2. After executing the BUY trade, immediately initiate a SELL in the

opposite currency. In this example, if you bought RY on a US exchange,
immediately sell RY at the “bid” price on the TSX (ie. in CAD). On Nov 14,
this would have resulted in obtaining $82.21 CAD, this works out to be
about spot rate (ie. no extra FX fees) depending on the bid/ask spread.

3. You may notice that the balances in your brokerage account may seem a
bit “off”. Effectively, you have shorted a stock thus sometimes showing a
negative balance, but the system will sort itself out within a week or so.

Final Thoughts

While using this strategy is a cost-effective method of eliminating the

hidden fees that discount brokerages charge for FX conversion, there are

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some caveats. First, you need to have an account with a discount

brokerage that offers automatic journaling of shares. Without this, you are
exposing yourself to FX and share price volatility. In addition, you need to
pick an inter-listed stock with low volatility. To help reduce volatility, do a
quick “news” search of the company for that day and avoid this strategy
during company earnings.

I’ve used this strategy a number of times with my BMO Investorline account
and it has saved me money every time. Check out my full review here.

If you would like to read more articles like this, you can sign up for my free
newsletter service below (we will not spam you).

About the author: FT is the founder and editor of Million Dollar

Journey (est. 2006). Through various financial strategies outlined on this
site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014.
You can read more about him here.

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