to avoid negative effects of a change in the exchange rate, the exporter can enter into a futures contract that establishes the rate at which the future income will be exchanged to the exporter's own currency. these opportunities for risk management have crucial economic importance. without them, many economic projects would be perceived as too risky and would never be realised. and this would lead to a slower development of the economy. deregulation and the rapid developments in technology and finance have made it possible to transfer these roles to the international stage on a much larger scale than before. thus, the financial markets'capacity to contribute to increased global growth has been strengthened. countries importing capital can increase their rate of investment and gain access to more modern technology, while the countries exporting capital can obtain a higher yield on it. many people have claimed in this context that companies in countries, which have recently deregulated their capital markets, have a tendency to take on more loans than they can manage. this does not appear to be the case. on the contrary, empirical research indicates that while non - financial companies with access to the international capital market increase their borrowing, their equity increases at the same rate. it also appears that these companies increase the duration of their loans. in this perspective, it is difficult to imagine that the risk of taking out excessively large loans increases as a result of deregulation. the various types of funds managed by many of you make a contribution to this, by supplying share capital to companies in other countries. economic policy content of crucial significance allow me to return to the criticism of developments on the financial markets. as i said, it cannot be dismissed out of hand. it is evident that there are some problems in the way these markets function. one only has to look at the mexico crisis of 1995 and the asia crisis of 1997 - 98 to see that. it is, however, important to remember that the origins of the crises lay in domestic problems in those countries that were hardest hit. in asia, as was the case here in sweden at the end of the 1980s, the countries developed a financial vulnerability through rapid credit expansion, over - investment in certain sectors, grossly inflated asset prices and short - term borrowing abroad. this borrowing was in turn channelled via domestic banks into projects with long - term funding. when foreign and domestic investors began to show concern over uncertainty regarding the growth potential of these countries, the course of events moved rapidly. this development shows how a misdire

as a result, their availability should have little effect on market rates. if, however, on rrps are offered above the level of money market rates that would be produced by ioer alone given prevailing frictions, on rrps should become attractive and help to form a floor for money market rates, either directly through increased take - up that reduces reserves or indirectly through the competitive pressure i described. since money funds – the majority of the fed ’ s on rrp counterparties – don ’ t face the same balance sheets costs as banks, the floor formed by on rrps should be relatively firm. while on rrps are a potentially useful tool for monetary policy control with large amounts of excess reserves, fomc and market participants have noted the potential for very large regular usage to alter patterns of financial intermediation. further, a fixed - rate structure with no usage limits could exacerbate liquidity pressures during times of stress. 11 the fomc recently authorized testing of a cap on the total daily usage of the on rrps that could help mitigate these risks. i ’ ll return to these risks and some ways that they may be mitigated in a bit. in sum, arbitrage activities by banks, complemented as needed by on rrp operations, should cause a higher ioer rate to lead to higher levels of market rates. however, if the pressure on market rates from the fed ’ s administered rates turns out to be insufficient, the committee has a range of other tools – including term deposits, term rrps, and asset sales – that could be used to help tighten the stance of policy. given the array of tools at our disposal, i am confident that the fomc can adjust and control short - term interest rates as needed to foster its objectives of maximum employment and price stability. the configuration of rates during normalization the committee ’ s normalization principles and plans do not detail the manner in which ioer as a primary tool would be combined with supplementary tools such as on rrps to move the fed funds rate into the target range. however, as reflected in the minutes to the july fomc meeting, most committee participants anticipate that, at least initially, the ioer rate could be set at the top of the target range for the funds rate, and the on rrp rate could be set at the bottom of that range. this is also consistent with the views of many market participants as reflected in surveys conducted by the desk.