What is an exchange rate?

An exchange rate is the cost at which one currency can be brought with the other. For example, $1 US dollar is equal to $1.37 Canadian dollars. This means that if you need to get $1 US dollar then you need to spend $1.37 CAD. Similarly, if you need to buy $100 US dollars, then you need to spend $137.34 Canadian dollars.

When a Canadian travels to the United States, then he will need US dollars. He/she can exchange currencies at banks, shopping malls, ATMs or the exchange kiosks found in the border. The conversion points charge for its service of converting one currency to another. The average fees are somewhere between 1% to 4%.

What is Norbert's Gambit?

Norbert’s Gambit is a technique which is used to convert CAD to USD and vice versa in a cheaper rate using discount brokerage accounts. For this, you open a brokerage account of your choice that offers access to both US and Canadian markets. Purchase DLR in Toronto stock exchange, call your broker to journal your shares to US exchange and when you now sell your DLR, you will have US dollars in your brokerage account. This can be withdrawn and used for various purposes. This can be done the other way around for the US residents to get Canadian dollars.

Why it is called so?

Norbert: This method of currency exchange was first devised and explained to the forum in ‘The Wealthy Boomer’ in 2001 by Mr. Norbert Schlenker.

Gambit: It is a chess term used when a player risks his pawn, which is of small importance to gain greater advantages in the future. In general, it means making a calculated move or taking a calculated risk for profits.

Hence, this technique was named as the Norbert’s Gambit.

Norbert’s Gambit in conclusion

Although you can reduce the fees using Norbert’s Gambit, you cannot totally do the conversion at free of cost. In fact, you pay fees two times, brokerage while buying and while selling the ETF. It is useful only if you are converting high volumes of money and if you can wait upto 5 trading days.