If it helps, think of baseball where games played within the same division are worth two in the standings. An investor that is optimistic about America’s role in the North American economy may invest speculating on a higher Canadian dollar and have an expected ROI on the exchange rate of $23.30 for a USD$810 investment (USD$810 buys CAD$1000 on September 25th at time of writing).
Conversely, an investor pessimistic about the current’s administration intent to be an intricate player in the North American economy may take a more pessimistic view towards the outlook of the relative strength of the Canadian dollar and build in a $40 loss per USD$810 invested.
What happens when either is wrong? The pessimistic outlook in this case may be seen as a conservative outlook with upside only and conversely for the optimistic investor. The pessimistic investor should the opposite example prove exactly true stands to gain an ROI of over 7% just on the foreign exchange … the optimistic investor stands to lose that much ROI in the opposite scenario with a total spread between the two extremes of almost 16%. In today’s ROI environment, that 16% spread may be overwhelming but sometimes a picture is indeed worth a thousand words. The ROI of the USA and Canadian indexes since January 2015 illustrate this.
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