Israel's foreign currency market in February 2010

08.03.2010
 
Israel’s foreign currency market in February 2010
 
  In February, the shekel weakened against the dollar by about 1.9 percent. The shekel weakened by about 0.6 percent against the nominal effective exchange rate.
  The actual volatility of the exchange rate was about 5.5 percent in February, which was slightly lower than its level of about 6 percent in both January 2010 and December 2009. The expected volatility, as reflected in the implicit standard deviation in shekel/dollar options, was at an average level of about 8 percent in February.
  The total volume of trade in foreign currency (spots and forward transactions, options transactions and swap transactions) totaled about $92 billion in February. The relative share of non-residents in total trade rose to a level of about 63 percent in February, which compares to a level of 60 percent in January and about 56 percent in December 2009.
Changes in the exchange rate
During the month of February, the shekel weakened against the dollar by about 1.9 percent, while at the same time the dollar strengthened against the pound sterling and the euro by about 4.9 percent and 1.7 percent, respectively. The shekel appreciated against the euro by about 1 percent and depreciated against the nominal effective exchange rate, which represents the change in the shekel against the currencies of Israel’s main trading partners, by about 0.6 percent.
The volatility of the exchange rate
The standard deviation of changes in the exchange rate, which represents its actual volatility, was at a level of about 5.5 percent, somewhat lower than its level of 6 percent in both January 2010 and December 2009.
The implied volatility in OTC shekel/dollar options––an indication of expected exchange rate volatility––was at an average level of about 8 percent in February as compared to about 9 percent in January. For the sake of comparison, the implied volatility of forex options in emerging and developed markets stood at average levels of about 13.5 percent and about 12.3 percent, respectively.
The volume of trade in Israel’s forex market
The total volume of trade in foreign currency totaled about $92 billion in February, which is higher than the monthly average of about $87 billion during 2009. In this context, the volume of trade in spots and forward transactions totaled about $30 billion in February, as compared to about $37 billion in January. The share of foreign financial institutions in this trading totaled about $12 billion. The Bank of Israel purchased about $200 million during February.
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $11 billion. The share of foreign financial institutions in this volume of trade stood at about $5 billion, which was similar to its level in January.
The share of foreign residents in the total volume of trade (spots and forward transactions, options transactions and swap transactions) rose in February to a level of about 63 percent in comparison to 60 percent in January and about 56 percent in December 2009.
The volume of trade in swap transactions totaled about $51 billion in February in comparison to a monthly average of about $40 billion during 2009.
 




 
Forex transactions with domestic banks, by instruments and derivatives
($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
Febuary-10 (Not final) Total 29,763 51,216 11,173 92,152
Daily average (20-days) 1,488 2,561 559 4,608
Nonresidents 11,865 41,142 5,218 58,225
of which Foreign financial institutions 11,569 40,966 4,988 57,523
Residents 17,898 10,074 5,955 33,927
of which Real sector 7,575 879 2,045 10,499
Financial sector 3,756 3,401 1,560 8,717
Institutions (incl. insurance companies) 1,284 1,939 1 3,224
Individuals and provident funds 526 118 488 1,132
The Bank of Israel 200     200
Otherc 274 130 42 446
Domestic banksd 4,283 3,607 1,819 9,709
 
JAN 2010 Total 36,683 54,721 12,176 103,580
Daily average (20-days) 1,834 2,736 609 5,179
Nonresidents 15,000 42,060 4,783 61,843
of which Foreign financial institutions 14,608 41,634 4,583 60,825
Residents 21,683 12,661 7,393 41,737
of which Real sector 7,869 1,206 2,841 11,916
Financial sector 4,768 3,908 2,183 10,859
Institutions (incl. insurance companies) 1,465 2,129 151 3,745
Individuals and provident funds 827 333 681 1,841
The Bank of Israel 1,573     1,573
Otherc 266 82 70 418
Domestic banksd 4,915 5,003 1,467 11,385
 
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