A numerical model of the upper ocean is developed to study the dynamics and thermodynamics of the Baie des Chaleurs (Gulf of St. Lawrence, Canada). The model has primitive equation dynamics with two active layers embedded with a Niiler-Kraus (Niller and Kraus, 1977) type mixed layer model at the top. Proper open boundary conditions and forcing functions are constructed. The model is eddy-permitting, with a horizontal grid spacing of 2¿4 km. An Arakawa C grid scheme is used. Forced by observed wind, atmospheric heat fluxes, river runoff, and appropriate remote forcing (in particular, the Gasp¿ Current, (GC)), the model demonstrates that the mean cyclonic general circulation pattern in the bay is a consequence of the intrusion of the GC. The strength of the circulation depends on the resultant stress of prevailing westerly winds and the opposing GC intrusion. In the mixed layer, atmospheric heat fluxes and horizontal thermal advection play a key role in the thermal balance at the eastern part of the bay. The local mixed layer fluctuations are controlled by wind and GC induced divergence. The entrainment (and its corresponding heat flux) is important at the western part of the bay and changes the mean mixed layer depth on a timescale of more than a week. Varying GC intensifies the flow variations induced by the wind in the bay and improves simulation results as compared with observations. ¿ American Geophysical Union 1995