Israel's foreign currency market in October 2009

11.11.2009
 
Israel’s foreign currency market in October 2009
 
  In October 2009 the shekel appreciated against the dollar by about 0.3 percent, and depreciated against the euro by about 0.7 percent.
  Currency conversions totaled about $31 billion in October, compared with about $32 billion in September. Trade in over-the-counter (OTC) options totaled $11 billion in October, compared with $14 billion in September.
  In October the actual shekel exchange rate maintained a low level of volatility of about 6 percent. Expected volatility, reflected by the implied volatility of shekel/dollar options, declined in October to an average level of about 9.5 percent, compared with 11 percent in September.
Exchange rate developments
In October 2009 the shekel appreciated against the dollar by about 0.3 percent, and depreciated against the euro by about 0.7 percent. The nominal effective exchange rate of the shekel, calculated as the change in the exchange rate of the shekel against the weighted currencies of Israel's main trading partners, showed shekel depreciation of 0.2 percent.
Since the beginning of 2009 the shekel has appreciated by about 1.5 percent against the dollar, and has depreciated by about 4.8 percent against the euro and by about 2.9 percent in terms of the nominal effective exchange rate.
The volume of trade in Israel's forex market
The volume of foreign currency conversions totaled about $31 billion in October 2009, compared with about $32 billion in September. The activity of the main sectors was also similar to that in September, with the foreign financial institutions accounting for some $11 billion (similar to the amount in September), and the domestic real sector about $8 billion (compared with $7 billion in September). The Bank of Israel's purchases in October totaled $1.3 billion, compared with $1.6 billion in September.
OTC options (not traded in the stock exchange) totaled about $11 billion in October, compared with $14 billion in September. The reduction in activity in options in October was mainly due to a decline in activity of the foreign institutional investors, which amounted to $4 billion in October compared with $6 billion in September. The volume of swap transactions totaled about $46 billion in October, compared with $43 billion in September.
Nonresidents' share of total turnover (conversions, options and swaps) was about 57 percent, similar their share in September.
The volatility of the exchange rate
The standard deviation of changes in the exchange rate, which represents actual exchange rate volatility, declined to about 6 percent in October from 7 percent in September, and compared with about 15 percent in August.
The implied volatility in OTC forex options––an indication of expected exchange rate volatility––averaged about 9.5 percent in October, compared with 11 percent in September and 13.6 percent in August. For comparison, the implied volatility of forex options of the emerging markets in October averaged 13.7 percent, and of the advanced economies, 13.3 percent.
 




 
Forex transactions with domestic banks, by instruments and derivatives
($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
October-09 (Not final) Total 31,407 45,574 10,579 87,560
Daily average (22-days) 1,428 2,072 481 3,980
Nonresidents 11,473 34,250 3,961 49,684
of which Foreign financial institutions 11,367 34,146 3,852 49,365
Residents 19,934 11,324 6,618 37,877
of which Real sector 8,168 1,356 2,567 12,091
Financial sector 3,143 3,418 1,711 8,272
Institutions (incl. insurance companies) 1,514 1,399   2,913
Individuals and provident funds 841 482 759 2,083
The Bank of Israel 1,274     1,274
Otherc 234 79 151 464
Domestic banksd 4,760 4,590 1,430 10,780
 
Sep - 09 Total 31,996 42,998 13,884 88,878
Daily average (21-days) 1,524 2,048 661 4,232
Nonresidents 11,663 32,836 6,314 50,813
of which Foreign financial institutions 11,446 32,754 6,250 50,451
Residents 20,333 10,162 7,570 38,066
of which Real sector 7,178 1,464 2,340 10,982
Financial sector 3,552 3,172 2,247 8,970
Institutions (incl. insurance companies) 1,674 1,766 58 3,499
Individuals and provident funds 787 157 1,159 2,103
The Bank of Israel 1,649     1,649
Otherc 437 95 57 590
Domestic banksd 5,056 3,508 1,709 10,273
 
 
a Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition).
b The notional value, that includes purchases and sales of put and call options.
c Including the Bank of Israel and other entities such as portfolio managers, nonprofit organizations, national institutions, and those not included elsewhere.
d Total interbank trade, divided by 22