Israel's foreign currency market in May 2010

Israel’s foreign currency market in May 2010
Developments in the exchange rate––the dollar strengthened against the shekel and against the major world currencies, as the euro continued to weaken against the dollar.
The dollar strengthened against the shekel during May by about 3.0 percent, while the euro, which weakened world wide, weakened also against the shekel by 3.8 percent. The dollar strengthened in May against most of the major currencies––by 8.0 percent against the euro, 5.1 against the pound sterling, and 7.2 percent against the Swiss franc (the exception was the yen, against which the dollar weakened by about 2.8 percent).
The nominal effective exchange rate, which represents the change in the shekel against the currencies of Israel’s main trading partners, showed shekel appreciation of about 0.8 percent in May, mainly due to the weakness of the euro against the shekel.
The volatility of the exchange rate––actual volatility increased considerably, with a moderate increase in the implied volatility of foreign exchange options.
The standard deviation of changes in the exchange rate, which represents its actual volatility, was about 11.3 percent in May, significantly higher than its levels of 6 percent in April and 5.2 percent in March.
The average level of the implied volatility in OTC forex options––an indication of expected exchange rate volatility—increased to about 8.4 percent in May, compared with about 7 percent in the previous two months. For comparison, the implied volatilities of the foreign exchange options in emerging markets and in advanced economies both increased to about 14 percent, from about 11 percent in April.
The volume of trade in Israel’s forex market in May, was higher than the average monthly volume in the first four months of 2010.
The total volume of trade in foreign currency in May was about $107.5 billion, compared with the average monthly level of $99 billion in the first four months of 2010 and the average monthly level of $87 billion in the whole of 2009. The volume of trade in spots and forward transactions totaled about $40 billion, higher than the average monthly level of $33 billion in the first four months of 2010. The Bank of Israel bought $600 million of foreign currency during May.
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $12.5 billion in May. Foreign financial institutions accounted for about $5 billion of this trade. The volume of trade in swap transactions in May was about $55 billion, similar to the average monthly level in January to April.
The share of foreign residents in the total volume of trade (spots and forward transactions, options transactions and swap transactions) in May was 57 percent, similar to the share in April.

Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
May-09 (Not final) Total 39,843 55,164 12,517 107,524
Daily average (19-days) 2,097 2,903 659 5,659
Nonresidents 14,714 41,466 4,977 61,157
of which Foreign financial institutions 14,545 40,961 4,819 60,325
Residents 25,129 13,698 7,540 46,367
of which Real sector 9,688 1,299 3,568 14,555
Financial sector 5,388 4,890 1,262 11,540
Institutions (incl. insurance companies) 1,803 1,874 41 3,718
Individuals and provident funds 719 34 488 1,241
The Bank of Israel 600     600
Otherc 542 84 623 1,249
Domestic banksd 6,389 5,517 1,558 13,464
April-09 Total 31,944 56,573 10,046 98,563
Daily average (19-days) 1,681 2,978 529 5,188
Nonresidents 11,935 40,875 4,810 57,620
of which Foreign financial institutions 11,704 40,497 4,539 56,740
Residents 20,009 15,698 5,236 40,943
of which Real sector 7,812 1,961 1,787 11,560
Financial sector 2,962 5,842 1,503 10,307
Institutions (incl. insurance companies) 1,905 1,901 1 3,807
Individuals and provident funds 366 140 332 838
The Bank of Israel 2,550     2,550
Otherc 280 68 72 420
Domestic banksd 4,134 5,786 1,541 11,461
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 2