A Canadian investor holds a significant portion of their portfolio in a U.S.-denominated mutual fund that invests solely in American technology companies. If the Canadian dollar strengthens significantly against the U.S. dollar, how would this primarily impact their investment when converted back to CAD?

Question: A Canadian investor holds a significant portion of their portfolio in a U.S.-denominated mutual fund that invests solely in American technology companies. If the Canadian dollar strengthens significantly against the U.S. dollar, how would this primarily impact their investment when converted back to CAD?

Answer options: ✅ The CAD value of the investment would decrease, irrespective of the fund's performance in USD.

• The CAD value of the investment would increase, irrespective of the fund's performance in USD.
• The fund's performance in USD would directly improve due to the stronger Canadian dollar.
• The fund's performance in USD would directly suffer due to the stronger Canadian dollar.

Correct answer: The CAD value of the investment would decrease, irrespective of the fund's performance in USD.

Explanation: If the Canadian dollar strengthens, it means it takes fewer Canadian dollars to buy one U.S. dollar. Therefore, when U.S. dollar-denominated assets are converted back to Canadian dollars, their value in CAD will decrease.