Chartered Investment Manager (CIM) Practice Exam · Question
A portfolio manager constructs a Canadian fixed income portfolio using an ETF that tracks US aggregate bonds. To mitigate the impact of CAD/USD exchange rate fluctuations on the CAD-denominated returns of this ETF, which type of ETF would be most appropriate?
A currency-hedged ETF aims to neutralize the impact of foreign currency movements against the investor's home currency. For a Canadian investor holding a US bon
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Question: A portfolio manager constructs a Canadian fixed income portfolio using an ETF that tracks US aggregate bonds. To mitigate the impact of CAD/USD exchange rate fluctuations on the CAD-denominated returns of this ETF, which type of ETF would be most appropriate?
Answer options:
- An unhedged US bond ETF. ✅ A currency-hedged US bond ETF.
- A Canadian aggregate bond ETF.
- A global aggregate bond ETF.
Correct answer: A currency-hedged US bond ETF.
Explanation: A currency-hedged ETF aims to neutralize the impact of foreign currency movements against the investor's home currency. For a Canadian investor holding a US bond ETF, a USD-denominated currency-hedged ETF would protect against CAD strengthening relative to USD, ensuring that bond returns are not eroded by currency effects.
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