Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis was prepared to supplement information contained in the accompanying financial statements and is intended to explain certain items regarding the Trust’s financial condition as of December 31, 2020, and its results of operations for the fiscal years ended December 31, 2020 and December 31, 2019. It should be read in conjunction with the “Selected Financial Data” and the accompanying audited financial statements and related notes thereto contained in this report.
Cautionary Statement Regarding Forward-Looking Information
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “outlook” and “estimate” and other similar words. Forward-looking statements are based upon our current expectations and beliefs concerning future developments and their potential effects on us. Such forward-looking statements are not guarantees of future performance. Various factors may cause our actual results to differ materially from those expressed in our forward-looking statements. These factors include fluctuations in the price of the Canadian Dollar, as the value of the Shares relates directly to the value of the Canadian Dollars held by the Trust and price fluctuations could materially adversely affect an investment in the Shares. Readers are urged to review the “Risk Factors” section in this report for a description of other risks and uncertainties that may affect an investment in the Shares.
Neither the Sponsor nor any other person assumes responsibility for the accuracy or completeness of forward-looking statements contained in this report. The forward-looking statements are made as of the date of this report, and will not be revised or updated to reflect actual results or changes in the Sponsor’s expectations or predictions.
Movements in the Price of the Canadian Dollar
The investment objective of the Trust is for the Shares to reflect the price in USD of the Canadian Dollar plus accrued interest, if any, less the expenses of the Trust’s operations. The Shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding Canadian Dollars. Each outstanding Share represents a proportional interest in the Canadian Dollars held by the Trust. The following chart provides recent trends on the price of the Canadian Dollar. The chart illustrates movements in the price of the Canadian Dollar in USD and is based on the Closing Spot Rate:
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NAV per Share; Valuation of the Canadian Dollar
The following chart illustrates the movement in the price of the Shares based on (1) NAV per Share, (2) the “bid” and “ask” midpoint offered on NYSE Arca and (3) the Closing Spot Rate, expressed as a multiple of 100 Canadian Dollars:
Liquidity
The Sponsor is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust’s liquidity needs. The Trust’s Depository, JPMorgan Chase Bank, N.A., London Branch, maintains two deposit accounts for the Trust, a primary deposit account that may earn interest and a secondary deposit account that does not earn interest. Interest on the primary deposit account, if any, accrues daily and is paid monthly. The interest rate in effect as of December 31, 2020 was an annual nominal rate of 0.00%. The following chart provides the daily rate paid by the Depository since December 31, 2015:
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In exchange for a fee, the Sponsor bears most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s fee. Each month the Depository deposits into the secondary deposit account accrued but unpaid interest, if any, and the Trustee withdraws Canadian Dollars from the secondary deposit account to pay the accrued Sponsor’s fee for the previous month plus other Trust expenses, if any. When the interest deposited, if any, exceeds the sum of the Sponsor’s fee for the prior month plus other Trust expenses, if any, the Trustee converts the excess into USD at the prevailing market rate and distributes the USD as promptly as practicable to Shareholders on a pro-rata basis (in accordance with the number of Shares that they own). The Trust did not pay any distributions during the quarter ended December 31, 2020.
Results of Operations
For the year ended December 31, 2020 and the year ended December 31, 2019
During the year ended December 31, 2020, an additional 1,000,000 Shares were created in exchange for 98,523,433 Canadian Dollars and 600,000 Shares were redeemed in exchange for 59,135,871 Canadian Dollars. In addition, 439,240 Canadian Dollars were withdrawn to pay the portion of the Sponsor’s fee that exceeded interest earned. As of December 31, 2020, the number of Canadian Dollars owned by the Trust was 191,849,213, resulting in a redeemable capital Share value of $150,539,263. During the year ended December 31, 2019, an additional 850,000 Shares were created in exchange for 83,848,876 Canadian Dollars and 1,550,000 Shares were redeemed in exchange for 152,900,891 Canadian Dollars. As of December 31, 2019, the number of Canadian Dollars owned by the Trust was 152,900,891, resulting in a redeemable capital Share value of $117,963,792.
An increase in the Trust’s redeemable capital Share value from $117,963,792 at December 31, 2019 to $150,539,263 at December 31, 2020 was primarily the result of an increase in the number of Shares outstanding from 1,550,000 at December 31, 2019 to 1,950,000 at December 31, 2020, coupled with an increase in the Closing Spot Rate from 0.7712 at December 31, 2019 to 0.7849 at December 31, 2020.
Interest income decreased from $1,477,677 for the year ended December 31, 2019 to $298,875 for the year ended December 31, 2020 attributable primarily to a decrease in the annual nominal interest rate paid by the Depository, as set forth in the FXC Daily Rate chart above, coupled with a decrease in the weighted-average Canadian Dollars in the Trust.
The Sponsor’s fee accrues daily at an annual nominal rate of 0.40% of the Canadian Dollars in the Trust. Due primarily to a decrease in the weighted-average Canadian Dollars in the Trust, the Sponsor’s fee decreased from $505,651 for the year ended December 31, 2019 to $493,949 for the year ended December 31, 2020. The only expense of the Trust during the years ended December 31, 2020 and December 31, 2019 was the Sponsor’s fee.
The Trust’s net comprehensive income (loss) for the year ended December 31, 2020 was $(195,074), due to the Sponsor’s fee of $493,949 exceeding interest income of $298,875. The Trust’s net comprehensive income (loss) for the year ended December 31, 2019 was $972,026, due to interest income of $1,477,677 exceeding the Sponsor’s fee of $505,651.
Cash dividends per Share decreased from $0.58 per Share for the year ended December 31, 2019 to $0.15 per Share for the year ended December 31, 2020. This decrease in cash dividends per Share was primarily the result of a decrease in the annual nominal interest rate paid by the Depository.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Sponsor’s management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period covered by this report.
In addition to the description below, please refer to Note 3 to the financial statements for further discussion of our accounting policies.
The functional currency of the Trust is the Canadian Dollar in accordance with ASC 830, Foreign Currency Translation.
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