A Canadian investor holds a portfolio heavily weighted in U.S. equities. If the Canadian dollar strengthens significantly against the U.S. dollar, what is the likely impact on the investor's portfolio value when converted back to Canadian dollars, assuming stock prices remain constant in USD?

Question: A Canadian investor holds a portfolio heavily weighted in U.S. equities. If the Canadian dollar strengthens significantly against the U.S. dollar, what is the likely impact on the investor's portfolio value when converted back to Canadian dollars, assuming stock prices remain constant in USD?

Answer options: ✅ The portfolio's value will decrease.

• The portfolio's value will increase.
• The portfolio's value will remain unchanged.
• The impact depends on the interest rate differential.

Correct answer: The portfolio's value will decrease.

Explanation: If the CAD strengthens, it means one Canadian dollar can buy more U.S. dollars. When the U.S. equity holdings are converted back to CAD, they will be worth less, resulting in a decrease in the portfolio's CAD value.