Israel’s foreign currency market in March 2015

 
1. The Exchange Rate
The shekel weakened against the dollar in parallel with the strengthening of the dollar worldwide.
 
In March, the shekel weakened by about 0.35 percent against the dollar, and strengthened by about 3.9 percent against the euro.
Against the currencies of Israel's main trading partners, in terms of the nominal effective exchange rate of the shekel (i.e., the trade-weighted average shekel exchange rate against those currencies), the shekel weakened by 1.7 percent in March.
In March, the dollar strengthened against most major currencies by higher rates—the dollar strengthened by about 4.4 percent against the euro, by about 2.4 percent against the Swiss franc, by about 4.3 percent against the British pound and by about 0.5 percent against the Japanese yen.
Since August 2014, the shekel has depreciated against the dollar by about 16.1 percent in total, and depreciated by only about 2.1 percent in terms of the nominal effective exchange rate.
 
2. Exchange Rate Volatility
An increase in actual volatility of the exchange rate, in parallel with an increase in the implied volatility of the exchange rate.
 
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in March by about 1 percentage point, to 12 percent at the end of the month.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––remained stable at around 11 percent at the end of March.
The implied volatility in foreign exchange options in emerging markets was unchanged at an average of 10.3 percent in March. In contrast, the implied volatility in foreign exchange options in advanced economies declined slightly to about 10.3 percent at the end of the month.
 
3. The Volume of Trade in the Foreign Currency Market
Average daily trading volume increased, in parallel with an increase in nonresidents’ relative share of total trading.
 
The total volume of trade in foreign currency in March was about $140 billion, compared with about $124 billion in February. Average daily trading volume increased by about 18 percent, to about $7.3 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $50 billion in March. Average daily trading volume in those transactions increased in March by about 17 percent compared with February. During March, the Bank of Israel purchased $485 million in spot and forward transactions[1], as part of the purchasing program intended to offset the effects of natural gas production on the exchange rate.
 
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $10 billion in March. The average daily trading volume in those options was about $550 million in March, an increase of about 15 percent from February.
 
The trading volume of swap transactions was about $78 billion in March, compared with $69 billion in February. Average daily turnover increased by about 18 percent from the previous month, to around $4 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased markedly in March, to about 44 percent, compared with 38 percent in February. The growth derived from an increase in the volume of nonresidents’ activity in conversion, swap, and options transactions.
 
 
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Forex transactions with domestic banks, by instruments and sectors
($ million)
 
 
 Conversions (1)
 Swaps[2] (2)
 Cross Currency swap[3] (3)
 Options[4] (4)
Total volume of trade (1)+(2)+(3)+(4)
March
2015
 (Not final)
Total
49,834
77,837
1,467
10,431
139,569
 Daily average (19 days)
2,623
4,097
77
549
7,346
Nonresidents
22,788
31,564
1,457
5,062
60,871
 of which Foreign financial institutions
21,543
30,795
1,307
4,852
58,497
Residents
27,046
46,273
10
5,369
78,698
 of which Real sector
6,183
5,524
10
1,669
13,386
 Financial sector
2,576
7,463
0
103
10,142
 Institutions (incl. insurance companies)
2,398
8,640
0
0
11,038
 Individuals and provident funds
1,071
2,283
0
352
3,706
 The Bank of Israel
485
0
0
0
485
of which within the program to offset the gas effect
485
0
0
0
485
 Other[5]
8,604
13,395
0
2,321
24,320
 Domestic banks[6]
5,729
8,968
0
924
15,621
February
 2015
Total
44,732
69,377
440
9,574
124,123
 Daily average (20 days)
2,237
3,469
22
479
6,206
Nonresidents
18,224
25,689
190
3,588
47,691
 of which Foreign financial institutions
17,257
24,772
190
3,330
45,549
Residents
26,508
43,688
250
5,986
118,310
 of which Real sector
5,138
4,923
0
2,178
12,239
 Financial sector
2,025
6,236
227
176
8,664
 Institutions (incl. insurance companies)
4,046
5,907
23
18
9,994
 Individuals and provident funds
968
3,086
0
259
4,313
 The Bank of Israel
1,095
0
0
0
1,095
of which within the program to offset the gas effect
295
0
0
0
295
 Other4
7,880
15,768
0
2,790
26,438
 Domestic banks5
5,356
7,768
0
565
13,689
 


[1] This figure reflects transactions by trade date, not settlement date. Therefore, it is not necessarily identical to the data published in the foreign exchange reserves notice, which reflects transactions by settlement date.
[2]  Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition)
[3]  The exchanged founds through Cross Currency Swap transactions considered for the volume, as one leg only in cases where the two legs offset each other.
[4] The national value, that includes purchases and sales of put and call options.
[5] Including other entities such as portfolio managers, nonprofit organizations, national institutions, and those not include elsewhere.
[6] Total interbank trade, divided in two.