Hon. Miichell Sharp (Minister of Finance):
Members of the house will be aware of accounts which have appeared in the public media regarding the disturbed state of international financial markets which developed at the end of last week. I believe these reports are greatly exaggerated, and that the situation is not as disturbed as it has been made out to be.
However, the developments of the last few days have resulted in a marked increase in the short term rates of interest in the so-called Euro-dollar market. These rates have 27053-454
risen to very high levels. In view of the already high level of short term rates of interest in Canada it has been thought desirable to protect the Canadian interest rate structure from the effect of these short term rates in the Euro-dollar market as far as we can.
The governor of the Bank of Canada has this morning, by agreement with me requested the banks and other financial intermediaries for the time being not to facilitate swapped deposit transactions, which constitute the main link between the Canadian short term interest rate structure and the rate prevailing in the Euro-dollar market.
I wish therefore to request Canadian investors for the time being to refrain from entering into or renewing swapped deposit transactions through any intermediary, Canadian or non-Canadian. By way of explanation I should add that swapped deposits are made with Canadian funds which are converted into a foreign currency, usually U.S. dollars, and placed on term deposit with a bank or other intermediary, with the intermediary undertaking through a forward contract to convert them back into Canadian dollars at maturity.
Subtopic: REQUEST THAT INVESTORS REFRAIN FROM SWAPPED DEPOSIT TRANSACTIONS