Many math cartoons later...
So, in that example:
loonie was worth 80 cents to USD dollar,
I bought 2727 shares at $36.67cad,
but in usa terms, each of these was worth 29.31usd.
the us market did its thing, went up by 10%.
so each share increased by $2.93usd to $32.24.
if i sell all 2727 shares when the loonie is still .80 to the usd,
then what i bought at 36.37cad is now [32.24usd x 2727 = $87918.48usd x ???? = ] $110,000.
(what's off in the above equation?)
in this case, i net the 10%, walking away with $110,000.
the relationship of the currencies was the same, so currency rates did not affect the final number.
but if i go to sell it at a time when the cad is subsequently on par with usd,
then what i bought at 36.27cad is now [32.24usd x 2727 = $87918.48usd x 1 = ] $87918.48cad.
in this case, i walk away with 88% of what I put in, or a 12% loss.
so, even though in my imagination "i bought 2727 stocks, worth 36.67cad each, and it went up therefore i have more", the additional factor is that of the cad doing a roller coaster, and where it lands at time of selling is the only thing that determines the value, entirely secondary to how the stock actually performed.
is that it?
it's basically like running two stocks, one overlaid on the other, each impacting the other, with both having equal potential for volatility.
but if i were to have spent $100,000 to buy $100,000 in us dollars, when these were at par, and then used those us dollars to buy the shares, then i would eliminate this additional factor.
there are additional ways, too, to eliminate this risk (currency hedging) as noted in cathy's post on that.
is this all correct?
