The public's financial assets portfolio

The public’s financial asset portfolio

​The public’s financial asset portfolio includes the assets of households and of the business sector (financial and nonfinancial firms). The portfolio does not include the government’s assets or those of the Bank of Israel, nonresidents, or the banks. Management of the asset portfolio can be divided into two types, which differ in how they are managed.

  • ​The asset portfolio managed directly by the public — The stock of financial assets, including cash and deposits, tradable and nontradable securities, and index products, held directly by the public and by portfolio managers or mutual funds.
  • ​The asset portfolio managed by institutional investors on behalf of the public — The public’s longterm savings managed by the institutional investors. These institutions include the provident funds and severance funds, advanced training funds, old and new pension funds, and life insurance policies managed by the insurance companies (excluding the insurance companies’ nostro portfolio, which they manage on their own behalf). The public’s savings in these channels are invested in tradable and nontradable securities and in other instruments, according to the investment guidelines of each entity.

Exposure to foreign assets

​The monetary amount at risk in the case of a decline in the value of assets issued by nonresidents (mostly assets held abroad). Investment in foreign assets and in foreign economies creates exposure to crises that may erupt in those economies and to other changes that have a negative impact on the value of the securities.

Investments abroad

​The balance of assets invested outside of Israel. This definition includes holdings of securities issued abroad by Israeli companies, and does not include holdings of foreign assets in Israel.

Private sector debt

The nonfinancial private sector

​The nonfinancial private sector is comprised of the business sector (Israeli commercial firms that are not banks or insurance companies) and households. The debt of the nonfinancial private sector focuses on the main lenders (banks, institutional investors and nonresidents), and does not include debt to other lenders (such as private credit companies). The assessment is that the volume of other lenders’ activity is small relative to that of the main lenders, and they are not currently included in the aggregates due to a lack of data.

Outstanding debt

​Outstanding debt shows the stock of credit (positions, stocks) from the point of view of the borrower at a given point in time. The value of the debt does not depend on the market value of the bond or the value of the loans in the lenders’ books. Therefore, outstanding bonds are presented at adjusted par value and outstanding loans are presented before deduction of loan loss provisions (such as doubtful or problematic debt provisions in the banks’ balance sheets) in the lenders’ books.

Estimated net quantitative change, quantitative increase/decrease of debt

​Estimated net quantitative change, quantitative increase/decrease of debt, is the change in outstanding debt, which shows economic activity in the credit market. The change in outstanding debt is influenced by net debt issuance (new credit raised, such as taking a loan or issuing bonds, minus repaid credit, such as repaid loans or repayment of bonds), by payment and accumulation of interest, by price changes (such as a change in the Consumer Price Index for CPI-indexed debt) and by other factors. Since there are no direct data on each of these components, an “estimated net quantitative change” is calculated from data on outstanding debt. The estimated quantitative change during a given period is calculated as the difference between outstanding debt at the end of the period and the outstanding debt at its beginning, minus relevant price changes. Since the estimated net quantitative change is derived from balances, it includes other effects on the balance beyond net debt raised, such as interest accumulations/payments.

Housing loans from the banks

​Housing loans from the banks, as reported to the banks by customers, are defined as loans that fulfill one of the following conditions (provided that they were not issued for business purposes): the loan is intended for the purchase, leasing, construction, expansion or renovation of a residential dwelling; the loan is intended for the purchase of a plot for the construction of a residential dwelling or for the purchase of rights to a residential dwelling in return for key money; the loan is issued with a residential dwelling as collateral; the loan is intended to finance the early repayment of a loan as stated in the first two conditions, in whole or in part.

Economic activity vis-a-vis abroad

Direct investment

​Investment by nonresidents in Israeli companies or investment by Israelis in foreign companies is defined as a direct investment when it involves holdings of more than 10 percent of the company’s capital (tradable and nontradable). Direct investment includes stock purchases, owners’ loans, and investment in real estate.

Financial investment

​Transactions between Israelis and nonresidents, involving debt instruments (including government bonds) or company stock where holdings are of less than 10 percent of the company’s capital, excluding investment that is included in reserve assets. This category reflects activity in the Israeli stock market or foreign stock markets.

Other investments

​Investments abroad by Israelis or investments in Israel by nonresidents in other instruments: deposits, financial loans (that are not owners’ loans or bonds), customer/supplier credit. Other investments abroad by Israelis also include investments in other assets (financial derivatives, mutual funds, index funds, and so forth).

Foreign exchange activity of the main sectors

The nominal effective exchange rate

​An index that reflects the relative price of the shekel vis-à-vis a basket of currencies. The weight of each currency in the index reflects its importance in Israel’s foreign trade. The index is calculated as the geometric average of the shekel’s exchange rate against 26 currencies representing the 33 countries that are Israel’s major trading partners.

Exposure to the exchange rate

​Exposure to the exchange rate (or exposure to foreign exchange) is the monetary amount at risk in a case of changes in the shekel exchange rate vis-à-vis foreign currencies. In terms of Israelis, this amount is estimated by the surplus of their foreign exchange assets over foreign exchange liabilities (denominated in and indexed to foreign exchange). In terms of nonresidents, this amount is estimated by calculating the surplus of their shekel assets over shekel liabilities. An Israeli is exposed to appreciation of the shekel when he holds a surplus of foreign exchange assets (positive), and is exposed to a depreciation of the shekel when he holds surplus foreign exchange liabilities (negative asset surplus). Nonresidents’ exposure works in the opposite direction.

Implied volatility in foreign exchange options

​Implied volatility in foreign exchange options represents the expected volatility in the exchange rate. Assuming that the options market is efficient and that actors in the market price the options based on the Black-Scholes model, the implied volatility should include all the relevant information regarding future volatility of the exchange rate. It therefore serves as a market estimate of volatility in the exchange rate during the period remaining until the options expire.

​Foreign exchange assets and liabilities

​Foreign exchange assets include: balance-sheet assets such as cash and deposits in foreign currency and foreign currency government and corporate bonds (generally foreign), and off-balance-sheet assets, meaning the open balance in transactions in derivative financial instruments (hereinafter: DFIs) for the purchase of foreign exchange against shekels, such as forward transactions and options (tradable and nontradable). Similarly, foreign exchange liabilities include: balance-sheet liabilities such as foreign exchange loans, and off-balance-sheet liabilities, meaning the open balance in DFI transactions for the sale of foreign exchange against shekels. Nonresidents’ assets and liabilities in shekels are defined similarly.