Israel's foreign currency market in January 2010

09.02.2010
 
Israel’s foreign currency market in January 2010
 
  In January 2010 the dollar weakened by about 1.4 percent against the shekel; this was in contrast with its strengthening against most major currencies. In terms of the nominal effective exchange rate the shekel appreciated by 2.4 percent.
  In January the actual volatility of the shekel exchange rate remained unchanged, similar to its December level of about 6 percent. Expected volatility, reflected by the implied volatility of shekel/dollar options, averaged about 9 percent in January.
  Total trade in foreign currency in January amounted to some $103 billion. Of this, about $37 billion consisted of conversions, compared with $34 billion in December.
Exchange rate developments
In January 2009 the dollar depreciated by about 1.4 percent against the shekel, in contrast with its appreciation against most of the major currencies, such as its 3.3 percent appreciation against the euro. The shekel appreciated by about 4.3 percent against the euro, and 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 appreciation of about 2.4 percent.
The volatility of the exchange rate
The standard deviation of changes in the exchange rate, which represents actual exchange rate volatility, remained at about 6 percent in January, similar to its December level, and compared with about 9.5 percent in November 2009.
The implied volatility in OTC shekel/dollar options––an indication of expected exchange rate volatility––was about 9 percent in January, compared to an average of about 8.5 percent in December. For comparison, the implied volatility of forex options of the emerging markets in December averaged 13.1 percent, and of the advanced economies, 12.3 percent.
The volume of trade in Israel's forex market
Total trade in foreign currency in January amounted to $103 billion, compared with $98 billion in December, and an average of $87 billion a month in the whole of 2009.
Currency conversions totaled about $37 billion in January, up from $34 billion in December. Most of the increase in conversions may be ascribed to the activity of conversions by foreign financial institutions, which accounted for about $15 billion in January, compared with $10 billion in December. Currency conversions by Israelis, however, declined from $24 billion in December to $22 billion in January. The Bank of Israel purchased about $1.6 billion on the market during January.
OTC foreign currency options (not traded in the stock exchange) totaled about $12 billion in January, $5 billion of which was activity of foreign financial institutions.
The volume of swap transactions totaled about $55 billion in January, compared with an average of $40 billion a month in 2009.
Nonresidents' share of total turnover (conversions, options and swaps) increased to about 60 percent in January, compared with 56 percent in December, and an average of 53 percent in 2009 as a whole.
 




 
Forex transactions with domestic banks, by instruments and derivatives
($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
January-10 (Not final) Total 36,571 54,720 12,109 103,400
Daily average (20-days) 1,829 2,736 605 5,170
Nonresidents 14,893 42,060 4,753 61,706
of which Foreign financial institutions 14,608 41,634 4,553 60,795
Residents 21,678 12,660 7,356 41,694
of which Real sector 7,994 1,294 2,959 12,247
Financial sector 4,616 3,795 2,039 10,450
Institutions (incl. insurance companies) 1,489 2,153 151 3,793
Individuals and provident funds 827 333 701 1,861
The Bank of Israel 1,573 0 0 1,573
Otherc 266 82 69 417
Domestic banksd 4,913 5,003 1,437 11,353
 
B1דצמבר-09 Total 33,931 53,543 11,001 98,475
Daily average (22-days) 1,542 2,434 500 4,476
Nonresidents 9,883 41,409 3,417 54,709
of which Foreign financial institutions 9,663 40,988 3,267 53,918
Residents 24,048 12,134 7,584 43,766
of which Real sector 9,524 1,689 2,553 13,766
Financial sector 5,560 3,813 1,613 10,986
Institutions (incl. insurance companies) 2,245 1,898 25 4,168
Individuals and provident funds 771 339 652 1,762
The Bank of Israel 132 0 0 132
Otherc 272 107 42 421
Domestic banksd 5,544 4,288 2,699 12,531
 
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