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a while ago there was discussion of a Smart Strategy that will exchange USD & CAD at wholesale rates without paying any broker, bank or credit card exchange fee. There is a full-bodied discussion of this strategy over on Canadian Capitalist's blog, with numerous comments from both practitioners & newcomers.

most of the commentators were dancing the dollar duo at tdw, and the comments confirmed that at tdw it's necessary to short a stock in the desired currency first, then buy the same stock long in the other currency, then phone tdw to get the long stock journaled over to cover the short position. All this is to prevent shorting against the box. The total operation might seem a bit tricky to some.

meanwhile, at bmo investorline i was told that both orders should work online within a second of each other, no shorting necessary, no phone call, ie it's a bi-directional website (very cool.) And i have to say that this is true. The other day i was selling an interlisted stock that i happened to have bought on the amex, ie i was long in USD. At the moment of sale the toronto bid price was better, so - experimentally to see how things would work out - i placed the sell order on toronto. Bingo, it was done. For several days thereafter the stock appeared in my account in both the long version in USD and the short version in CAD. This pairing persisted a couple of days past the settlement date, after which both positions vanished. What i had were nicely-laundered loonies, no exchange fee whatsoever. Fast, accurate, cheap online trades. No human intervention whatsoever.

here's another tip for avoiding currency exchange fees. Some canadian companies - most notably the big resource companies like Barrick and Encana - pay their dividends in US dollars first. Oh, i know, the brokers and the companies' IRs will tell you that you can have your dividend in whichever currency you want. What they don't tell you - because in most cases the online broker reps & even the IRs don't know it - is that when a dividend like barrick is issued in the first instance in USD, it will thereafter undergo a series of currency exchange fees to convert that dividend into canadian if you are being foolish enough to keep that stock in your canadian account. No hint of this will ever appear on your statements; there is almost no way to find out; and as i mentioned, none of the brokers seem to be aware of this.

in addition to barrick and encana, the US dividend payors include canadians biovail and thomson-reuters.

here's an easy way to tell what's going on:

- note the amount of a particular dividend in both USD and CAD to the 4th decimal place (info can be found on co. website.)
- whenever the dividend amount is an even sum in USD, like .375, but a ragged amount in CAD, like .3814, you should suspect that the primary dividend currency is USD and that ragged figure you are seeing is the result of conversion by the middlemen.

this would not matter much if you only have a few dividends, but if you're hanging onto your stock for 10 years, that hidden 2% subtracted from aggregate dividends does add up.

brokers' mainframe systems are able to keep track of which dividend payors in USD in a USD account are actually canadian companies by origin, so you will receive a correct tax T-5 for these dividends with all dividend tax credits clearly & fairly set forth.

all clear as mud ? woo hoo ! moral of the story is don't ever pay them another exchange penny !
 
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