A Canadian investor holds a US equity ETF. Over the past year, the S&P 500 returned 15% in USD. During the same period, the CAD depreciated by 5% against the USD. If the investor held an unhedged US equity ETF, what would be their approximate return in CAD?

Question: A Canadian investor holds a US equity ETF. Over the past year, the S&P 500 returned 15% in USD. During the same period, the CAD depreciated by 5% against the USD. If the investor held an unhedged US equity ETF, what would be their approximate return in CAD?

Answer options:

• 10.00%
• 15.00% ✅ 20.75%
• 19.25%

Correct answer: 20.75%

Explanation: When the CAD depreciates (USD appreciates), the investor benefits from the currency movement. The approximate return in CAD can be calculated as (1 + USD return) * (1 + CAD depreciation) - 1. So, (1 + 0.15) * (1 + 0.05) - 1 = 1.15 * 1.05 - 1 = 1.2075 - 1 = 0.2075 or 20.75%.