Norbert's gambit - Can$ to US$ or vice versa

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by NorthernRaven »

pitz wrote:Of course, since swaps were banned by the discount brokers in the registered/TFSA accounts, if someone wants to change the asset allocation on funds already committed, they continue to be stuck doing Norbert's gambit inside the RRSP/TFSA itself. Or, if doing a transaction near the end of the year, in the case of a TFSA, doing a TFSA withdrawal, and re-contribution in the new year if TFSA limits are a concern.
I don't think all swaps as such were banned by all brokers. If I remember correctly, what the CRA did was prohibit "advantage" swaps, designed to increase the value of the RRSP - there's weird things you can do with property, thinly traded stocks with fuzzy fair market values, and so on. But I think something vanilla, like swapping in USD to an RRSP in exchange for the equivalent in CAD at the day's exchange rate, are probably okay with CRA?

I know that TDDI (aka TD Waterhouse) eliminated all swaps, probably to avoid any hassles - a shame, since they would actually swap their TD funds without fee. But RBCDI, for instance, still has a $35 fee listed for "Substitution or Swap: Exchange of cash or securities held in a registered plan with cash or securities of equal value held outside the plan". It would be interesting to see if that "plain vanilla" swap would be possible with them. Anyone know more about this?
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by pitz »

NorthernRaven wrote:
pitz wrote:Of course, since swaps were banned by the discount brokers in the registered/TFSA accounts, if someone wants to change the asset allocation on funds already committed, they continue to be stuck doing Norbert's gambit inside the RRSP/TFSA itself. Or, if doing a transaction near the end of the year, in the case of a TFSA, doing a TFSA withdrawal, and re-contribution in the new year if TFSA limits are a concern.
I don't think all swaps as such were banned by all brokers. If I remember correctly, what the CRA did was prohibit "advantage" swaps, designed to increase the value of the RRSP - there's weird things you can do with property, thinly traded stocks with fuzzy fair market values, and so on. But I think something vanilla, like swapping in USD to an RRSP in exchange for the equivalent in CAD at the day's exchange rate, are probably okay with CRA?
Oh my read was that swaps were banned by the discount brokers, period. Not a CRA issue, but rather, as the thread indicated, simply one of a compliance problem for the brokers. I stand corrected though, if this isn't the case.
I know that TDDI (aka TD Waterhouse) eliminated all swaps, probably to avoid any hassles - a shame, since they would actually swap their TD funds without fee. But RBCDI, for instance, still has a $35 fee listed for "Substitution or Swap: Exchange of cash or securities held in a registered plan with cash or securities of equal value held outside the plan". It would be interesting to see if that "plain vanilla" swap would be possible with them. Anyone know more about this?
Good question. Because if so, then someone with sufficient liquidity could swap CAD$ cash for USD$ cash and only pay the $35 fee (and whatever commissions IB or whatever would charge). On larger amounts, could be a significant savings, although with the $6.99 commissions + Norbert's gambit, I'm not sure how big the risk could possibly be if it was well-executed.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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pitz wrote:Good question. Because if so, then someone with sufficient liquidity could swap CAD$ cash for USD$ cash and only pay the $35 fee (and whatever commissions IB or whatever would charge). On larger amounts, could be a significant savings, although with the $6.99 commissions + Norbert's gambit, I'm not sure how big the risk could possibly be if it was well-executed.
Hmm, the CRA says that "A swap transaction is expressly included in the list of transactions that are treated as an advantage, with effect from July 1, 2011.". Oh well. I guess it is like the example I've seen for stocks, where you repeatedly swap stock in and out of an RRSP at high and low price points to transfer value out of the RRSP without tax. In theory you could do the same thing with forex volatility, so effectively even the vanilla swap is going to incur the penalty tax. I guess either RBCDI still has the swap on the books for those who need to do this anyway, or for other limited sorts of swaps that aren't affected.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SkaSka »

This might be a relatively noobish question :oops: but I recently did my first successful NG at TDDI in my TFSA and my USDs are sitting in the USD money market fund.

With the new USD TFSA/RRSP accounts (in my case the USD TFSA), the USD MMF has been transferred into the USD TFSA.

Should I sell the USD MMF? And if so, would it just become USD cash that sits as cash in the USD TFSA or would selling the USD MMF result in the funds converting back to CAD?

I mean, I know there is probably no point in doing this as I would just sell the USD MMF after I buy US stock, but I'm just a curious guy :)
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by jeremy »

You can sell the USD MMF if you want, it should just get added to the USD cash balance of the account. There shouldn't be any currency conversions unless you use the "foreign exchange" function (or you buy or sell something that's not in the currency of the account.).

Also note that TDB8152 (USD HISA) pays slightly better interest (0.2%) than TDB166 (~0.06%).
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Re: Norbert's gambit - Can$ to US$ or vice versa

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jeremy wrote:Also note that TDB8152 (USD HISA) pays slightly better interest (0.2%) than TDB166 (~0.06%).
Slightly better? It's three times as much! :P (lies, damned lies and statistics)
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by MALDI_ToF »

adrian2 wrote:
jeremy wrote:Also note that TDB8152 (USD HISA) pays slightly better interest (0.2%) than TDB166 (~0.06%).
Slightly better? It's three times as much! :P (lies, damned lies and statistics)
Three times of almost nothing is still almost nothing!! :rofl:
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by milton »

SkaSka wrote:This might be a relatively noobish question :oops: but I recently did my first successful NG at TDDI in my TFSA and my USDs are sitting in the USD money market fund.

With the new USD TFSA/RRSP accounts (in my case the USD TFSA), the USD MMF has been transferred into the USD TFSA.

Should I sell the USD MMF? And if so, would it just become USD cash that sits as cash in the USD TFSA or would selling the USD MMF result in the funds converting back to CAD?

I mean, I know there is probably no point in doing this as I would just sell the USD MMF after I buy US stock, but I'm just a curious guy :)
I wonder what happens to NG after November 28, 2014 when the new US$ registered plan component at TD Direct Investing is fully implemented? A letter arrived in mail yesterday saying:

With these improvements, as of November 28,2014, we will no longer automatically buy/sell US$ Money Market in your RSP or TFSA to eliminate currency conversion charges
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by eulogy »

I hold the same question as Milton. I'd like to know what the deal with the gambit is now at TDW. From the grumblings I've seen on other forums, you have to call up get them to execute the sell at the phone cost.

The only real reason I've stuck with TD is that they have the e-series (which I usually dump money into until I have enough for an ETF purchase, but I haven't really done that lately). I sometimes wonder if it's worth sticking with TDW when they seem to lag the competition a bit.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

Did a fairly big gambit this AM at TDDI. No issues as far as I can tell. Did not need to speak to agent.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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SQRT wrote:Did a fairly big gambit this AM at TDDI. No issues as far as I can tell. Did not need to speak to agent.
In what type of account?
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SkaSka »

adrian2 wrote:
SQRT wrote:Did a fairly big gambit this AM at TDDI. No issues as far as I can tell. Did not need to speak to agent.
In what type of account?
I am very curious to know as well.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

Non registered margin accts. Have a short enabled USD account which I use only for Gambits. Sell USD short first then buy CDN immediately. Use CM as this is a big cap inter listed I don't own. In the past the journaling of shares from the long CDN account to the short USD account has been problematic. I usually call them to do this but it seems they will do it automatically if I don't. Sometimes done twice. This time I think I will wait to see what happens. Typical size high 5 figures. 1-2 times per year. Effective rate was 1.1385 (.8784) Not happy with this but what can you do.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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SQRT wrote: Effective rate was 1.1385 (.8784)
Bank of Canada's site shows the Daily noon rate for December 1 as 1.1344 and the close as 1.1328 Looks to me like you did OK!

PS I had an Amazon Visa USD transaction on December 1 - converted to CAD at 1.14375. God knows what the rate would have been on a 'regular' credit card.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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DavidR wrote:
SQRT wrote: Effective rate was 1.1385 (.8784)
Bank of Canada's site shows the Daily noon rate for December 1 as 1.1344 and the close as 1.1328 Looks to me like you did OK!
Yes the gambit works fine. Just not happy with the weak CDN dollar.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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SQRT wrote:Yes the gambit works fine. Just not happy with the weak CDN dollar.
Time to do it the other way around! :P
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Re: Norbert's gambit - Can$ to US$ or vice versa

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adrian2 wrote:
SQRT wrote:Yes the gambit works fine. Just not happy with the weak CDN dollar.
Time to do it the other way around! :P

Yes Adrian, exactly what I plan to do - as the CDN dollar goes down. :thumbsup:
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Re: Norbert's gambit - Can$ to US$ or vice versa

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adrian2 wrote:
SQRT wrote:Yes the gambit works fine. Just not happy with the weak CDN dollar.
Time to do it the other way around! :P
I wish I had a lot of USD. Unfortunately my cash flow is all CDN with some expenses in USD. I did take note of the discussion further up thread re USD div payers.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Koogie »

My business generates a lot of USD so the NG is of less use to me since I can generally just wait until the overall exchange rate is in my favour anyway. Unfortunately now I am in a bit of a (very nice) quandary about whether to exchange it all and take the great 14% premium or hold off on some as I want to purchase some VXUS in the new year. So far, having an extra 14% in hand has won out and I don't think I'll gamble much on it going to much higher in the short term.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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Koogie wrote:My business generates a lot of USD so the NG is of less use to me since I can generally just wait until the overall exchange rate is in my favour anyway. Unfortunately now I am in a bit of a (very nice) quandary about whether to exchange it all and take the great 14% premium or hold off on some as I want to purchase some VXUS in the new year. So far, having an extra 14% in hand has won out and I don't think I'll gamble much on it going to much higher in the short term.
That would be my view as well. But the currency markets are volatile and often overshoot, so who knows. I held off buying USD until I almost ran out. Whenever I get "squeezed" this way, I try to remember that I got my biggest USD call right when I bought our Arizona house when the CDN $ was at a premium.
Last edited by SQRT on 04 Dec 2014 14:20, edited 2 times in total.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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Koogie wrote:My business generates a lot of USD so the NG is of less use to me since I can generally just wait until the overall exchange rate is in my favour anyway.
Whatever "in your favour" exchange rate number it is, a percent or two better is preferable to it. :P
Koogie wrote:So far, having an extra 14% in hand has won out and I don't think I'll gamble much on it going to much higher in the short term.
You seem to think the 'default' / 'natural' exchange rate is par. I don't share that view. As for where it's going next, I have no opinion.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Koogie »

adrian2 wrote:Whatever "in your favour" exchange rate number it is, a percent or two better is preferable to it. :P
True but waiting until it is nice and high (and I'm talking full pennies or even nickels here) and then just called the trading desk downtown is so easy....
adrian2 wrote:You seem to think the 'default' / 'natural' exchange rate is par. I don't share that view. As for where it's going next, I have no opinion.
No, I don't actually think that and not sure how you come to that. In fact "par" doesn't seem a natural state to me (let alone above par).
Natural commodity swings notwithstanding, I've never thought our rocks and lumber peso should be on equal footing with the currency of a mature consumer and manufacturing market 10 times our size that also happens to be the (current) world reserve currency. It also so happens that a weak loonie helps my exporting customers and by extension me, so I've never been in favour of "par" !

EDIT: as soon as I posted I could tell what you meant (I think). You think because I'm getting talking about a ""14% return"" that I think par is the basis for that calculation. Correct ?
Actually, in my business we have to come up with rates for clients that are a combination of USD and CAD figures (often EUR, JPY and GBP as well but that is another story). When we create those rates (and by extension our profit levels) we do actually "par" the USD and CAD components. This is done only to build in a cushion against currency swings during the A/R cycle. In reality, the "14%" return is more likely 4% since the average has been about 1.10 in 2014.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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Koogie wrote:
adrian2 wrote:You seem to think the 'default' / 'natural' exchange rate is par. I don't share that view. As for where it's going next, I have no opinion.
No, I don't actually think that and not sure how you come to that.
Koogie wrote:So far, having an extra 14% in hand has won out
It seemed to me (incorrectly, as you point out) that 14% was in reference to par, as in US$1 ~= CA$1.14
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by SQRT »

My gambit settled and funds have now been transfered to my banking accts. I did have to call and have the shares journalled and this happened immediately. TDDI has a weird practice of marking the short position to market and offsetting this in another USD account (nets to zero). Makes it confusing and a bit of a challenge to get the funds out. But does work fine.
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Re: Norbert's gambit - Can$ to US$ or vice versa

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SQRT wrote:TDDI has a weird practice of marking the short position to market and offsetting this in another USD account (nets to zero).
It's not a weird practice, it's a regulatory requirement. But it is annoying to see all those daily cash journals, I agree.
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