@article{Currency:4181,
      recid = {4181},
      author = {Freedman, Charles},
      title = {The Foreign Currency Business of the Canadian Banks An  Econometric Study},
      publisher = {Bank of Canada},
      address = {1974},
      pages = {1 online resource (xvi, 233 pages)},
      note = {This study was prepared as part of the econometric  research programme of the Bank of Canada.},
      abstract = {The foreign currency assets and liabilities of the  Canadian chartered banks grew rapidly over the 1960s and  now account for a substantial share of their total assets  and liabilities. In this study I analyze the forces  underlying this growth as well as some of the implications  for Canadian monetary policy and for the Canadian balance  of payments of transactions in these assets and  liabilities. I also examine the role of the chartered banks  as participants in the Euro-dollar market and as a possible  conduit for funds between the United States and the  Euro-dollar market. A complex process determines the  quantities of chartered bank foreign currency assets and  liabilities outstanding. The process reflects interaction  among depositors, borrowers, and the banks themselves. I  examine in detail the behaviour of each of these groups.  Interest rates offered by the banks on foreign currency  deposits are set on the basis of the rates obtainable by  investors on competing financial instruments and the rates  the banks can earn on assets in which they invest. Given  the interest rates on foreign currency deposits and those  on competing financial instruments, depositors decide what  quantity of such deposits they wish to hold. The banks  appear to determine the size of their net foreign asset  positions on the basis of interest rates in the United  States and Canada, the stance of Canadian monetary policy,  and the amount of swapped deposits outstanding. Chartered  bank foreign currency loans are primarily a function of the  borrowers' demand for funds. This demand is influenced by  relative interest rates and by the degree of difficulty  encountered in obtaining loans elsewhere. Chartered bank  foreign currency liquid assets are allocated among  deposits, call loans, and securities. Throughout this study  careful attention is paid to the effect of certain official  guidelines on the various behavioural relationships. In the  concluding chapter I attempt to evaluate the significance  of chartered bank transactions in foreign currency assets  and liabilities. Changes in Canadian interest rates  relative to rates abroad give rise to substantial capital  outflows and inflows via these transactions. The scope for  varying their net foreign asset positions gives the banks  an additional degree of flexibility in responding to the  central bank's cash reserve management. Before the  guidelines were imposed, Canadian banks channeled  substantial amounts of funds between the United States and  the Euro-dollar market in response to relative interest  rate changes. In short, transactions in chartered bank  foreign currency assets and liabilities play a significant  role both in the working of the Canadian financial system  and as part of the international linkages between Canada,  the United States, and the rest of the world.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/4181},
      doi = {https://doi.org/10.34989/srs-10},
}