Israel's foreign currency market in October 2010

                                                                                                                                                                    08.11.2010
 
Israel’s foreign currency market in October 2010
 
Developments in the exchange rate––the shekel appreciated moderately against the dollar as the dollar
continued to weaken around the world
The shekel appreciated by about 0.8 percent against the dollar during October, and depreciated by 0.7 percent against the euro. Against the currencies of Israel's main trading partners, the nominal effective exchange rate of the shekel, i.e., the trade-weighted average shekel exchange rate against those currencies, remained at about the same level as at the end of September. The dollar continued to weaken against the major currencies in October––by 1.5 percent against the euro, by 0.5 percent against the pound sterling, and by 3.4 percent against the yen.
Since the beginning of 2010 the shekel appreciated by 3.7 percent against the dollar, and by 7.7 percent against the euro. In terms of the nominal effective exchange rate the shekel appreciated by 3.6 percent.
The volatility of the exchange rate––both the actual and the implied volatility of the exchange rate increased in October
The standard deviation of changes in the exchange rate, which represents its actual volatility, was 8.5 percent in October,
higher than in the previous months (3.6 percent in September and 5.6 percent in August).
The average level of the implied volatility in OTC (over the counter) forex options––an indication of expected exchange rate volatility––was about 8.1 percent in October, compared with an average of 6.4 percent in September and 7.0 percent in August. For comparison, the implied volatility of the foreign exchange options of emerging markets and advanced economies also increased, to an average of 12.7 percent.
There was a high volume of trade in Israel’s forex market in October, in all instruments
The total volume of trade in foreign currency in October was unusually high, about $135 billion, compared with about $86
billion in September and an average monthly level of $100 billion in January–September 2010. The volume of trade in spots  and forward transactions totaled about $42 billion, a daily average of about $2 billion, compared with a daily average of $1.7 billion in September. Nonresidents' transactions in spots and forwards totaled some $16 billion in October, accounting for 39 percent of the trade in these instruments. The Bank of Israel purchased $3.125 billion in October[1].
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $16 billion in October, and the volume of swap transactions was unusually high, at about $78 billion, compared with about $50 billion in September and a monthly average of about $56 billion in the months January to September.
Nonresidents' accounted for about 65 percent of the total volume of trade in October (spots and forward transactions,
options and swaps), compared with 63 percent in September and 67 percent in August.
 




 
Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
October 2010 (Not final) Total 41,570 78,052 15,742 135,364
Daily average (21-days) 1,980 3,717 750 6​,446
Nonresidents 16,279 62,436 9,436 88,151
of which Foreign financial institutions 15,783 61,972 9,278 87,033
Residents 25,291 15,616 6,306 47,213
of which Real sector 8,464 1,529 2,279 12,272
Financial sector 4,860 5,176 1,478 11,514
Institutions (incl. insurance companies) 2,314 2,031 30 4,375
Individuals and provident funds 808 450 315 1,573
The Bank of Israel 3,125     3,125
Otherc 429 64 237 730
Domestic banksd 5,291 6,366 1,967 13,624
           
September 2010 Total 27,446 49,554 9,345 86,345
  Daily average (16-days) 1,715 3,097 584 5,397
  Nonresidents 9,789 39,100 5,416 54,305
  of which Foreign financial institutions 9,404 38,825 5,385 53,614
  Residents 17,657 10,454 3,929 32,040
  of which Real sector 8,174 1,092 1,368 10,634
  Financial sector 2,744 3,459 1,003 7,206
  Institutions (incl. insurance companies) 1,410 1,323 130 2,863
  Individuals and provident funds 470 285 244 999
  The Bank of Israel 949     949
  Otherc 416 57 64 537
  Domestic banksd 3,494 4,238 1,120 8,852
 
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
[1] This figure is different from what was reported in the latest press release on the foreign exchange reserves. The difference results from foreign exchange purchases totaling $250 million by the Bank of Israel in the last days of September, the value dates of which were in October.
 
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