their operations. many firms are repositioning themselves to specialize in higher value - added production. some have abandoned labour - intensive mass production in favour of small lots and customized products. many are improving the quality of their products and services. others have transferred labour - intensive production offshore, but have kept and developed their high - skilled operations in canada. let me make one last very important point. from our discussions and our analysis of the data, it is clear that manufacturing is not a monolithic sector. there is no single strategy that will work for every manufacturer, because every business is unique. some manufacturers face sector - specific challenges. others, such as those producing machinery and equipment, are facing booming demand. but while each business is unique, most of them are looking for ways to adapt to, and thrive in, these challenging times. paul and i will now be happy to answer your questions.

. a key element of our monetary policy framework is the floating exchange rate. let me be clear : we do not have a target or preferred exchange rate for the canadian dollar. but it is an important relative price in our economy. in terms of the bank's monetary policy, exchange rate movements give us information about economic developments that may be having a direct impact on demand in the canadian economy. and the movements themselves have their own effect on demand, by changing relative prices for canadian goods and services and by shifting demand between domestic and foreign products. the challenge for the bank is to evaluate these movements, together with other data, and set a course for monetary policy that works to keep demand and supply in balance and inflation on target. when the canadian dollar rises or falls, we try to determine how much of that movement is due to changes in world demand for our goods and services, and how much is due to other unrelated factors. it is important that we understand the causes of exchange rate movements, because the implications for the economy — and the appropriate monetary policy response — depend on the cause of the change. we set out a fairly detailed explanation of this in our january 2005 monetary policy report update, which is included in your package. that's a very quick look at our framework. now, let me apply that framework to our current situation. i am sure that the members of the committee are well aware of the global forces that are affecting not just canadian manufacturers, but the entire economy. in the past few years, we have had extraordinarily strong global economic growth. there has also been an unusually high amount of liquidity in the global economy, which central banks are now in the process of removing. meanwhile, we have seen a persistent and growing current account deficit in the united states, mirrored by large and growing current account surpluses elsewhere, especially in asia and among many oil - exporting countries. these imbalances reflect the financial flows associated with mismatches in savings and investment on a global scale. we have also seen the emergence of china and india as economic powerhouses. the strong growth in these countries and other emerging - market economies has led to sharply higher prices for many of the products that canada produces. at the same time, intense competition from manufacturers around the world has led to lower prices for many consumer durable and semi - durable goods. all of this has resulted in an improvement in our terms of trade and higher incomes for canadians — particularly for producers of commodities, metal