when you are less sure of a leveraged play. 'it all depends, but for the most part hedging gives a risk-adjusted increase in portfolio returns over the long run'. Just to make things complicated: If what you want is to earn (as a Canadian in Loonies) the same return as the posted return (in US) for the (e.g. You could withdraw the proceeds from the short sale and repatriate them to Loonies, but then your broker would charge interest on the money withdrawn and the FX swap will have its own cost. Futures contract cost next to nothing to purchase. Instead, he short sells US10,000 of the Loonie ETF. Your 'cost' is the income forgone on that collateral. The company you work for may have access, so make nice to the comptroller, and ask. More importantly, if your position loses 1,000, it will be taken from your account. "But what if the Loonie goes back down?" This is the same mind space of investors who refused to sell as Nortel's stock fell from its highs. In the short-term a booming economy * causes a high demand for capital, which * causes inflation, which * causes central banks to raise interest rates to combat inflation, which * causes foreign investment inflows to buy that high-interest debt, which * causes the currency.
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"I made money clinical informatics jobs work from home on the falling loonie so I don't mind losing money as it strengthens." These people don't understand that investing is about making money AND keeping. So to create a US dollar liability you would short this contract. Even if it were working, as an investor you will gravitate to countries with smoking-hot economies - with their own inflation. But no one expects all currencies' exchange rates to increase over time. The Government borrows US dollars. People start comparing purchasing-power-parity between countries. There is no correlation between inflation and equity returns.
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