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 млн: 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 Олимпийская деревня:

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. То есть: $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)