Derivatives and foreign exchange trading is up significantly since 2001 in Canada, according to results from a survey conducted by the Bank of Canada in April.

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, compared with an average of US$41.6 billion per day in 2001, an increase of close to 30%. This represents an upswing from 13% growth recorded in 2001. The survey found that turnover of foreign exchange transactions showed the highest growth rate since the 1995 survey.

Ninety-five per cent of the foreign exchange market activity in Canada involves the U.S. Dollar on one side of the trade. Transactions involving the Canadian dollar fell from 62% in 2001 to 56% in 2004. The other most significant currencies in foreign exchange transactions in Canada in 2004 were the euro (18%), the Japanese yen (9%), and the U.K. pound sterling (8%). 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.

The survey also noted that the trend for spot transactions to fall over time and for foreign exchange swaps to rise was reversed in 2004. Spot transactions rose from 25% in 2001 to 34% in 2004, while foreign exchange swaps fell from 70% to 59% over the same period. Outright forwards were relatively more stable, increasing from 5% in 2001 to 7% in 2004.

The composition of foreign exchange business by counterparty was fairly stable with interbank trading accounting for 62% of foreign exchange transactions in Canada and customer business for 38% (compared with 64% and 36%, respectively, in April 2001).

The central bank said all financial institutions in Canada that are active in the wholesale foreign exchange and derivatives markets were surveyed. The 18 financial institutions represent approximately 99% of these markets in Canada.