A Canadian client invests $150,000 in a US equity ETF that is currency-hedged to the CAD. Over the next year, the underlying US equity market returns +10%, and the CAD depreciates by 5% against the USD. Ignoring fees and taxes, what is the approximate value of the client's investment in CAD at year-end?

Question: A Canadian client invests $150,000 in a US equity ETF that is currency-hedged to the CAD. Over the next year, the underlying US equity market returns +10%, and the CAD depreciates by 5% against the USD. Ignoring fees and taxes, what is the approximate value of the client's investment in CAD at year-end?

Answer options: ✅ $165,000

• $172,500
• $157,500
• $164,250

Correct answer: $165,000

Explanation: Since the ETF is currency-hedged to the CAD, the impact of currency fluctuations (the 5% CAD depreciation) is largely neutralized. Therefore, the client's return is primarily driven by the underlying asset's performance. The original investment of $150,000 increased by 10%, resulting in $150,000 * (1 + 0.10) = $165,000.