Israel’s foreign currency market in February 2014


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Graphs & Data

1. The Exchange Rate

The shekel was stable against the dollar, in contrast with the dollar's weakness against global currencies.

The shekel remained unchanged against the dollar, and weakened by about 1.3 percent against the euro during February. 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 0.6 percent.

In February, the dollar weakened against most global currencies—including by about 1.9 percent against the Swiss franc, by about 1.2 percent against the euro, by about 1.6 percent against the British pound, and by about 0.9 percent against the Japanese yen.

2. Exchange Rate Volatility

Actual volatility of the exchange rate increased, in contrast with a decline in its implied volatility.

The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in February by about 1.6 percentage points to 4.8 percent, compared with 3.2 percent in January.

The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––declined to 7.1 percent at the end of February, compared with 7.3 percent in January.

In February, the implied volatility in foreign exchange options in emerging markets increased, reaching 10.1 percent on average, compared with 9.7 percent in January.  In contrast, the implied volatility in foreign exchange options in advanced economies declined in February, to 8 percent at the end of the month.

3. The Volume of Trade in the Foreign Currency Market

Average daily trading volume declined, with stability in non-residents’ share of total trading volume

 

The total volume of trade in foreign currency in February was about $88 billion, compared with about $102 billion in January. Average daily trading volume increased by about 5 percent in February, and reached about $4.4 billion.

 

The volume of trade in spot and forward transactions (conversions) was about $32 billion in February, compared with $38 billion in January. The average daily trading volume in those transactions declined in February by about 8 percent compared with January. During February, the Bank of Israel bought $490 million through conversion transactions[1], including $290 million as part of the purchase 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 $9 billion in February. The average daily trading volume in those options in February was about $450 million, a decline of about 5 percent from its level in January.

 

The trading volume of swap transactions was about $46 billion in February. Average daily turnover was unchanged from the previous month, at around $2.3 billion.

 

Nonresidents' share of total trade (spot and forward transactions, options and swaps) remained unchanged in February, at about 31 percent.



[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.

 

 

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Forex transactions with domestic banks, by instruments and sectors
($ million)

 

 
 
 Conversions (1)
 Swaps[1] (2)
 Cross Currency swap[2] (3)
 Options[3] (4)
Total volume of trade (1)+(2)+(3)+(4)
February
2014
 (Not final)
Total
32,011
46,388
748
9,126
88,273
 Daily average (22 days)
1,601
2,319
37
456
4,414
Nonresidents
10,512
13,042
0
3,692
27,246
 of which Foreign financial institutions
9,858
12,971
0
3,541
26,370
Residents
21,499
33,346
748
5,434
61,027
 of which Real sector
5,786
3,483
500
2,388
12,157
 Financial sector
3,967
17,535
14
1,706
23,222
 Institutions (incl. insurance companies)
4,355
4,453
105
75
8,988
 Individuals and provident funds
815
283
0
329
1,427
 The Bank of Israel
490
0
0
0
490
of which within the program to offset the gas effect
290
0
0
0
290
 Other[4]
3,050
41
0
169
3,260
 Domestic banks[5]
3,036
7,551
129
767
11,483
January 2014
Total
38,036
52,021
1,383
10,538
101,978
 Daily average (21 days)
1,729
2,365
63
479
4,635
Nonresidents
12,716
13,882
108
4,271
30,977
 of which Foreign financial institutions
11,646
13,535
108
4,126
29,415
Residents
25,320
38,139
1,275
6,267
71,001
 of which Real sector
6,467
5,342
101
2,826
14,736
 Financial sector
4,305
14,303
391
1,442
20,441
 Institutions (incl. insurance companies)
5,085
6,663
104
81
11,933
 Individuals and provident funds
846
589
0
602
2,037
 The Bank of Israel
1,840
0
0
0
1,840
of which within the program to offset the gas effect
340
0
0
0
340
 Other4
3,304
34
0
130
3,468
 Domestic banks5
3,473
11,208
679
1,186
16,546


[1]  Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition)
[2]  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.
[3] The national value, that includes purchases and sales of put and call options.
[4] Including other entities such as portfolio managers, nonprofit organizations, national institutions, and those not include elsewhere.
[5] Total interbank trade, divided in two.