If you’re mov­ing to Canada, why is it impor­tant to pay atten­tion to changes in the exchange rate between U.S. and Canadian dollars?

Because depend­ing on the way the cur­ren­cies are mov­ing, it can cost you big bucks.

Here’s what hap­pened to the city of Vancouver.

As reported in today’s Vancouver Sun under the head­line, “Exchange risk could cost city $60 mil­lion: Loan for Olympic Village must be repaid in U.S. dol­lars bought when the loonie was aloft,” the city has got­ten into trou­ble over the financ­ing of the new Olympic Village:

Just when you thought you’ve com­puted all the risks from the Olympic vil­lage cri­sis, here’s another. The $1.2-billion devel­op­ment has been financed using inter­na­tional “cur­rency swaps,” one of the riski­est ways to borrow.

Here’s the situation.

The builder of the Olympic vil­lage, Vancouver’s Millennium Development, arranged to bor­row its con­struc­tion bud­get for the Olympic Athletes’ Village from Wall Street’s Fortress Investment Group. That $750-​​million line of credit was to be bor­rowed in U.S. dol­lars, then swapped into loonies, to pay contractors.

That prob­a­bly seemed swell at the time. Our loonie was fly­ing high back then. For a period it was even at par, or above the U.S. green­back, and seemed des­tined to float there. U.S. dol­lars actu­ally seemed cheap.

Around then, we know Millennium began to draw down about $300 mil­lion of that $750 mil­lion Fortress loan, though exact dates of when money was drawn aren’t pub­lic. But sup­pos­ing Millennium made its draw when the loonie was at par, or so. Millennium would have roughly got­ten a one-​​to-​​one deal on its loan. That is: $1 Canadian = $1 US.

Not bad. How can you go wrong with a deal like that?

Well, quite eas­ily when world cur­rency cur­rents turn against you.

Photo by Payton Chung (flickr)