Israel’s foreign currency market in August 2014

Graphs & Data

1. The Exchange Rate
The dollar strengthened against the shekel, in parallel with the strengthening dollar worldwide.
 
In August, the shekel weakened by a significant rate of about 4 percent against the dollar and by about 2.5 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 about 3.3 percent.
In August, the dollar strengthened against most currencies by lower rates—including by about 1.5 percent against the euro, by about 0.7 percent against the Swiss franc, by about 1.9 percent against the British pound, and by about 1 percent against the Japanese yen.
 
 
2. Exchange Rate Volatility
A marked increase in actual volatility of the exchange rate along with a more moderate 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 August by about 3.5 percentage points to 7.3 percent.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased more moderately, to 7 percent at the end of August, compared with 5.9 percent in July. This level is still lower than the average level of volatility in the past two years.
At the same time, in August, the implied volatility in foreign exchange options in emerging markets also increased, to 7.5 percent on average. The implied volatility in foreign exchange options in advanced economies increased as well in August, to 6 percent at the end of the month.
 
 
3. The Volume of Trade in the Foreign Currency Market
Trading volume in swap and options transactions increased.  Nonresidents’ share of total trading volume also increased.
 
The total volume of trade in foreign currency in August was about $162 billion, compared with about $147 billion in July. Average daily trading volume increased by about 27 percent in August, to about $8.1 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $44 billion in August, compared to about $34 billion in July. The average daily trading volume in those transactions increased in August by about 50 percent compared with July. During August, the Bank of Israel bought $585 million through conversion transactions[1], as part of the purchasing program intended to offset the effect 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 $17 billion in August. The average daily trading volume in those options in August was about $850 million, an increase of about 115 percent from its level in July.
 
The trading volume of swap transactions was about $100 billion in August, compared with $104 billion in July. Average daily turnover increased by about 12 percent from the previous month, to around $5 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in August, to about 31 percent, compared with about 25 percent in July.
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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)
August
2014
 (Not final)
Total
44,467
100,431
228
17,072
162,198
 Daily average (20 days)
2,223
5,022
11
854
8,110
Nonresidents
20,047
22,646
70
8,179
50,942
 of which Foreign financial institutions
19,322
21,790
70
8,064
49,246
Residents
24,420
77,785
158
8,893
111,256
 of which Real sector
7,206
5,827
10
4,294
17,337
 Financial sector
4,138
42,981
0
2,273
49,392
 Institutions (incl. insurance companies)
4,299
7,296
0
215
11,810
 Individuals and provident funds
1,105
11,055
0
620
12,780
 The Bank of Israel
585
0
0
0
585
of which within the program to offset the gas effect
585
0
0
0
585
 Other[5]
3,156
55
0
227
3,438
 Domestic banks[6]
3,931
10,571
148
1,264
15,914
July
 2014
Total
34,198
103,553
501
9,129
147,381
 Daily average (23 days)
1,487
4,502
22
397
6,408
Nonresidents
11,627
20,992
0
4,289
36,908
 of which Foreign financial institutions
10,926
20,572
0
4,254
35,752
Residents
22,571
82,561
501
4,840
110,473
 of which Real sector
6,812
7,433
406
2,272
16,923
 Financial sector
3,490
48,136
22
1,415
53,063
 Institutions (incl. insurance companies)
4,552
5,391
0
81
10,024
 Individuals and provident funds
828
11,187
57
221
12,293
 The Bank of Israel
300
0
0
0
300
of which within the program to offset the gas effect
0
0
0
0
0
 Other4
3,516
21
0
156
3,693
 Domestic banks5
3,073
10,393
16
695
14,177
 


[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.