Survey of Foreign Exchange and Derivatives Market Activity in Canada

Summary results of a survey of activity in Canadian foreign exchange and derivatives markets conducted by the Bank of Canada in April 2004 are now available. Similar surveys were undertaken in 51 other countries during the same month, and the central banks of many of those countries are also releasing their results today. This worldwide effort was coordinated by the Bank for International Settlements (BIS), which is issuing a press release today that summarizes highlights of the aggregated global turnover. 1  Surveys have been conducted by the Bank of Canada every three years since 1983, and the results of those surveys are shown in the tables included with this release.

All financial institutions in Canada that are active in the wholesale foreign exchange and derivatives markets were surveyed. These consisted of 18 financial institutions, representing approximately 99 per cent of these markets in Canada. With respect to foreign exchange, the survey covered spot transactions, outright forwards, foreign exchange swaps, currency swaps, 2 and over-the-counter (OTC) options. The interest rate products covered were forward rate agreements, interest rate swaps, and OTC options. Participants were also asked to identify transactions by currency and type of counterparty.

Highlights of the 2004 Survey

• The turnover of traditional foreign exchange transactions (spot, outright forwards, and foreign exchange swaps) showed the highest growth rate since the 1995 survey. In April 2004, foreign exchange transactions totalled US$1,133 billion, compared with US$833 billion in April 2001, yielding an average daily turnover in 2004 of US$53.9 billion (over 21 business days), compared with an average of US$41.6 billion per day (over 20 business days) in 2001, an increase of close to 30 per cent.
• Prior to the 2004 survey, the rate of growth in average daily turnover of traditional foreign exchange transactions had declined steadily with each survey, from a high of 85 per cent in 1986 to 13 per cent in 2001 (Table 1).
• The average turnover for currency swaps and OTC foreign exchange options more than doubled to US$5.4 billion per day from the relatively small base of US$2.6 billion in April 2001. With respect to single-currency interest rate derivatives, including forward rate agreements, interest rate swaps, and OTC options, average daily turnover in April 2004 totalled US$12.1 billion, compared with US$9.9 billion in April 2001, an increase of 22 per cent (see Table 2 for details on the individual products).
• Table 3 shows the distribution by currency of foreign exchange market activity in Canada. Almost all transactions (95 per cent) have the U.S. dollar on one side. Transactions involving the Canadian dollar fell from 62 per cent in 2001 to 56 per cent in 2004. The other most significant currencies in foreign exchange transactions in Canada in 2004 were the euro (18 per cent), the Japanese yen (9 per cent), and the U.K. pound sterling (8 per cent). The Canadian dollar lost ground as a result of more non-Canadian dollar currency business against the U.S. dollar such as the euro (up 2 percentage points) and the "other" category (up 5 percentage points from the previous survey). In this "other" category, the most significant currencies were the Swiss franc, the Australian dollar, and the Mexican peso.
• Table 4 shows the composition of foreign exchange business by type of transaction. The trend for spot transactions to fall over time and for foreign exchange swaps to rise (with the exception of the 1995 survey) was reversed in 2004. Spot transactions rose from 25 per cent in 2001 to 34 per cent in 2004, while foreign exchange swaps fell from 70 per cent to 59 per cent over the same period. Outright forwards were relatively more stable, increasing from 5 per cent in 2001 to 7 per cent in 2004.
• Table 4 also provides data on the composition of foreign exchange business by counterparty. In April 2004, interbank trading accounted for 62 per cent of foreign exchange transactions in Canada and customer business for 38 per cent (compared with 64 per cent and 36 per cent, respectively, in April 2001).

Note: More detailed tables on the results of the Canadian survey will be made available on the Canadian Foreign Exchange Committee's (CFEC's) Web site (www.cfec.ca) later this year. Similarly, in the spring of 2005, the BIS will publish a more detailed report on the aggregated global data. The CFEC's Web site will contain a direct link to that report.