Israel’s foreign currency market in July 2014

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Graphs & Data

1. The Exchange Rate
The shekel strengthened against the dollar, in contrast with the strengthening dollar worldwide.
 
In July, the shekel strengthened by about 0.3 percent against the dollar and by about 2.2 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 strengthened by about 1.4 percent.
In July, the dollar strengthened against most currencies—including by about 2.1 percent against the Swiss franc, by about 1.9 percent against the euro, by about 0.85 percent against the British pound, and by about 1.5 percent against the Japanese yen.
 
2. Exchange Rate Volatility
Actual volatility of the exchange rate increased along with a decline 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 July by about 0.5 percentage points to 3.9 percent.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––declined to 5.9 percent at the end of July, compared with 6.1 percent in June.

At the same time, in July, the implied volatility in foreign exchange options in emerging markets also declined, to 6.8 percent on average. The implied volatility in foreign exchange options in advanced economies declined as well in July, to 5.5 percent at the end of the month.

3. The Volume of Trade in the Foreign Currency Market
Total trading volume increased as a result of an increase in swap transaction volume.  Nonresidents’ share of total trading volume declined.
 
The total volume of trade in foreign currency in July was about $147 billion, compared with about $128 billion in June. Average daily trading volume remained virtually unchanged in July, at about $6.4 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $34 billion in July, similar to the volume for June. The average daily trading volume in those transactions declined in July by about 16 percent compared with June. During July, the Bank of Israel bought $300 million through conversion transactions[1].
 
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $9 billion in July. The average daily trading volume in those options in July was about $400 million, a decline of about 6 percent from its level in June.
 
The trading volume of swap transactions was about $103 billion in July, compared with $84 billion in June. Average daily turnover increased by about 7 percent from the previous month, to around $4.5 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined in July, to about 25 percent, compared with about 30 percent in June.

 


[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 sector
($Millions)

 

 
Conversions (1)
Swaps[1] (2)
Cross Currency swap[2] (3)
Options[3] (4)
Total volume of trade (1)+(2)+(3)+(4)
July
2014
 (Not final)
Total
34,082
103,178
501
9,099
146,860
 Daily average (20 days)
1,482
4,486
22
396
6,385
Nonresidents
11,557
20,870
0
4,271
36,698
 of which Foreign financial institutions
10,856
20,450
0
4,236
35,542
Residents
22,525
82,308
501
4,828
110,162
 of which Real sector
6,812
7,403
406
2,277
16,898
 Financial sector
3,488
48,163
22
1,415
53,088
 Institutions (incl. insurance companies)
4,551
5,386
0
81
10,018
 Individuals and provident funds
817
11,034
57
204
12,112
 The Bank of Israel
300
0
0
0
300
of which within the program to offset the gas effect
0
0
0
0
0
 Other[4]
3,496
19
0
156
3,671
 Domestic banks[5]
3,061
10,303
16
695
14,075
June
 2014
Total
35,193
84,146
309
8,461
128,109
 Daily average (20 days)
1,760
4,207
15
423
6,405
Nonresidents
12,890
21,253
0
3,757
37,900
 of which Foreign financial institutions
12,252
21,231
0
3,694
37,177
Residents
22,303
62,893
309
4,704
90,209
 of which Real sector
6,249
7,117
0
1,894
15,260
 Financial sector
3,626
35,893
121
1,549
41,189
 Institutions (incl. insurance companies)
3,466
8,917
38
12
12,433
 Individuals and provident funds
750
3,207
0
208
4,165
 The Bank of Israel
1,380
0
0
0
1,380
of which within the program to offset the gas effect
580
0
0
0
580
 Other4
3,600
41
0
250
3,891
 Domestic banks5
3,232
7,718
150
791
11,891


[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.