Risk Management in the Exchange Fund Account

• In managing the Exchange Fund Account (EFA),* the Bank of Canada and the Department of Finance strive to limit the risks to which the Government of Canada is exposed in financing and investment operations that involve foreign currencies. • The EFA is exposed to various types of risk: credit risk, market risk, liquidity risk, operational risk, and legal risk. The approach used to manage them collectively has allowed risk to be held at a low level. • The EFA governance process involves close collaboration between the Department of Finance and the Bank of Canada. This collaboration covers management of the Account and administrative tasks. Financing and investment operations are carried out by the Bank in its role as fiscal agent for the government. • The first step in managing the EFA’S risks involves identifying, analyzing, evaluating, and modelling them. The second involves establishing guidelines to limit these risks, while the third ensures day-to-day adherence to those guidelines, as well as periodically proposing new risk-control mechanisms.