Summary of Israel's Foreign Exchange Activity in November 2006

10/12/2006
 
Summary of Israel's Foreign Exchange Activity in November 2006
 
The exchange rate of the shekel fluctuated for most of the month around NIS 4.30 to the dollar with no clear trend, though on the last day of the month (and in the first few days of December) the shekel appreciated sharply against the dollar by 1.3 percent and by 1 percent against the currency basket. This was against a background of a dollar weakening against the euro at a similar rate as well as against most currencies of the emerging market economies. Exchange-rate risk––as measured by the implied volatility of NIS/$ options––remained relatively stable at around 5.6 percent.
The Department of Foreign Exchange Activity of the Bank of Israel reports that November was characterized by mostly long-term activities and relatively moderate amounts both on the part of nonresidents as well as Israelis.
Nonresidents' long-term activities were influenced by the reduced number of direct investments in different industries and the considerable amounts in high-tech companies and one particular company in the financial sector, and which were also expressed by the cumulative data since the beginning of the year, which totaled around $ 19 billion.
Nonresidents also sold foreign currency in short-term activities, though in more moderate quantities. This was concentrated mainly in Shahar government shekel bonds, within the nonresidents' new role as market makers, with the volume of their activities rising sharply to more than twice that in previous months. Total net investment by nonresidents in portfolio securities reached the considerable sum of $ 800 million.
The business sector was a net buyer of foreign currency in November, though in moderate quantities, for investment in foreign shares, both directly or though portfolios. In addition, the sector bought foreign currency, mainly through accumulating foreign currency deposits in banks in Israel, which were partly offset by the sale of foreign currency forward contracts and paying off bank credit in foreign currency.
Households' net activities in foreign currency continued to be on a very small scale as in recent months and were concentrated in small redemptions of holdings in mutual funds indexed to the exchange rate, further to the recent trend in this sector.
 
Main Indicators of Activity in the NIS/FX Market
FX sales (+), FX purchases (–)
$ million
  2004 2005 Jan-November 2006 November 2006
1. Nonresidents        
Total direct and portfolio (shares and bonds) investment bb 7,200 9,947 19,164 1990
Portfolio investment in Israeli securities (bonds and shares) (+) 5,443 4,362 6,737 –793
Of which: In portfolio shares on the TASE (+) 502 2,139 –202 –56
In Israeli bonds on the TASE (+) 45 512 987 792
Israeli issues abroad (bonds and shares) 3,937 1,286 c8,410 127
Direct investment (+) 1,757 5,585 12,427 2,783
Purchases of local-currency assets via derivatives (+) 311 –2,303 2,159 –408
2. Business sector        
Accumulation in foreign-currency deposits (-) –2,025 –3,339 –4,017 –1,053
Net foreign-currency bank credit taken from banks in Israel (+) –1,012 –3,613 –1,409 183
Forward forex purchases (-) –1,086 2,036 –2,802 445
3. Institutional investors (excl. mutual funds): investments in assets abroad (-) –906 –2,922 –2,583 –171
4. Households        
Accumulation (-) in mutual funds specializing in forex –228 –912 663 162
Accumulation (-) in forex deposits in banks in Israel –662 –1,427 –1,320 –92
 
a Detailed data are available on the Bank of Israel website, www.bankisrael.gov.il
b Excluding government bonds floated abroad.
c Mostly one particularly large deal.