Israel's foreign currency market in March 2010

                                                                                                                                                                  11.04.2010
 
Israel’s foreign currency market in March 2010
 
Developments in the exchange rate––the shekel strengthened against the dollar and the euro in March
During March, the shekel strengthened against the dollar by about 2.2 percent, at the same time as the dollar weakened
against many other currencies, with the exception of the euro and the yen. Nonetheless, the shekel strengthened against the Euro by about 3.1 percent. The nominal effective exchange rate, which represents the change in the shekel against the currencies of Israel’s main trading partners, showed depreciation against the shekel by about 2.3 percent.
The volatility of the exchange rate
The standard deviation of changes in the exchange rate, which represents its actual volatility, was about 5.2 percent in
March, compared with 5.5 percent in February and 6.1 percent in January.
The downward trend evident in the last few months of the implied volatility in OTC forex options––an indication of expected exchange rate volatility—continued in March, and it reached an average of 7.2 percent, compared with about 8.1 percent in February. For comparison, the implied volatility of the foreign exchange options in emerging markets was about 11 percent,
and in advanced economies, about 11.5 percent.
The volume of trade in Israel’s forex market
The total volume of trade in foreign currency in March was about $101 billion, compared with $92 billion in February, and
higher than the monthly average of about $87 billion during 2009. The volume of trade in spots and forward transactions
totaled about $32.5 billion in March, about $20 billion of which was transactions by Israelis. The Bank of Israel purchased
about $500 million during March.
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $12 billion.
The share of foreign financial institutions in this volume of trade stood at about $6 billion, up from $5 billion in February. The volume of trade in swap transactions totaled about $57 billion in March compared with $51 billion in February and $55 billion
 in January.
The share of foreign residents in the total volume of trade (spots and forward transactions, options transactions and swap transactions) declined in March to 61 percent from 63 percent in February and compared with about 60 percent in January
2009.
 




 
Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
March-10 (Not final) Total 32,514 56,634 12,291 101,439
Daily average (20-days) 1,626 2,832 615 5,072
Nonresidents 12,492 42,761 6,133 61,386
of which Foreign financial institutions 12,369 42,448 5,986 60,803
Residents 20,022 13,873 6,158 40,053
of which Real sector 8,832 1,599 2,646 13,077
Financial sector 3,458 5,228 1,070 9,756
Institutions (incl. insurance companies) 1,413 2,086 ​47 3,546
Individuals and provident funds 422 243 281 946
The Bank of Israel 500     500
Otherc 440 90 291 821
Domestic banksd 4,957 4,627 1,823 11,407
           
Febuary-09 Total 29,800 51,218 11,227 92,245
Daily average (20-days) 1,490 2,561 561 4,612
Nonresidents 11,746 41,125 5,077 57,948
of which Foreign financial institutions 11,554 40,962 4,849 57,365
Residents 18,054 10,093 6,150 34,297
of which Real sector 8,031 948 2,345 11,324
Financial sector 3,610 3,657 1,432 8,699
Institutions (incl. insurance companies) 1,227 1,754 1 2,982
Individuals and provident funds 355 25 332 712
The Bank of Israel 200     200
Otherc 296 63 221 580
Domestic banksd 4,335 3,646 1,819 9,800
 
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 other entities such as portfolio managers, nonprofit organizations, national institutions, and those not included elsewhere.
d Total interbank trade, divided by 22