According to a survey of Canadian foreign exchange and derivatives markets conducted by the Bank of Canada, foreign exchange trading is slumping, while options trading is booming.

The survey found that turnover of traditional foreign exchange transactions (spot, outright forwards, and foreign exchange swaps) showed only moderate growth. In April 2001, foreign exchange transactions totaled US$833 billion compared with US$773 billion in April 1998, yielding an average daily turnover in 2001 of US$41.6 billion (over 20 business days), compared with an average of US$36.8 billion per day in 1998, an increase of 13%. The rate of growth in average daily turnover of traditional foreign exchange transactions has declined steadily with each survey, from a high of 85% in 1986.

However, the average turnover for currency swaps and OTC foreign exchange options more than doubled to US$2.6 billion per day from the relatively small base of US$1.1 billion in April 1998. Single-currency interest rate derivatives, including forward rate agreements, interest rate swaps, and OTC options, average daily turnover in April 2001 totaled US$9.9 billion, compared with US$6.4 billion in April 1998, an increase of 55%.

Almost all foreign exchange transactions (96%) have the U.S. dollar on one side. Transactions involving the Canadian dollar fell from 70% in 1998 to 62% in 2001. The other most significant currencies in foreign exchange transactions were the euro (16%), the Japanese yen (9%), and the U.K. pound sterling (8%).

The trend for spot transactions to fall over time and for foreign exchange swaps to rise continued in 2001. Spot transactions fell from 28% in 1998 to 25% in 2001, while foreign exchange swaps rose from 68% to 70% over the same period. Outright forwards were relatively stable, increasing from 4% in 1998 to 5% in 2001.

Interbank trading accounted for 64% of foreign exchange transactions in Canada and customer business for 36% (compared with 72% and 28%, respectively, in April 1998).

Similar surveys were undertaken in over 45 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. All financial institutions in Canada active in the wholesale foreign exchange and derivatives markets were surveyed. These consisted of 28 financial institutions and 5 foreign exchange and fixed-income brokers.