In contrast, the exchange rate is determined by global market forces, both real and financial, that encompass the global demand and supply for Canadian goods and services as well as assets.4 Because our flexible exchange rate responds to and helps absorb those external forces, it allows us to target inflation with the policy rate.
Further relaxation on regulations regarding underlying transactions for forward and swap as hedging instruments has been issued, and we are now campaigning to the banks and corporates to use more hedging instruments in managing their increasing exchange rate risks. We also make significant progress in deepening domestic money market, especially those of collateralized transactions.