Israel's Foreign-Currency Market in January 2011

Israel’s Foreign-Currency Market in January 2011
Exchange-rate developments—the shekel depreciated against the dollar, mainly after publication of the policy measures in the foreign-currency and debt-instrument markets.
In January, the shekel depreciated by 4.5 percent against the dollar, by 7.3 percent against the euro, and by 5.3 percent
against the currencies of Israel’s main trading partners as weighted by the nominal effective exchange rate. Most of the depreciation took place in the second half of the month, after new policy measures of the Bank of Israel and the Ministry of Finance in the foreign-exchange and debt-instrument markets were made public, and on the background of the geopolitical developments in the region. From January 19 onward, the shekel lost 5.1 percent against the dollar and 5.6 percent against
 the nominal effective exchange rate.
In January, the dollar depreciated by 2.5 percent against the euro and by 2.6 percent against the British pound but
appreciated by 1 percent and 2.2 percent against the yen and the Australian dollar, respectively.
Volatility of the exchange rate— actual and implied volatility have increased.
The Standard Deviation of changes in the exchange rate, which represents the actual volatility of the exchange rate,
increased to 10.7 percent in January as against previous months (4.8 percent in December and 7.7 percent in November).
The average implied volatility in trading in OTC shekel/dollar options—representing expected exchange-rate volatility—
was 9.4 percent in January as against 8.5 percent in December. By comparison, the average implicit volatility in emerging-
 and developed-market forex options did not record a significant change and were 12.4 percent and 11.6 percent,
respectively, in January.
Volume of trading in the foreign-currency market—significantly large amounts of trading in spot and forward transactions
Total forex trading was $151 billion in January as against $146 billion in December and $109 billion on daily average in 2010. Trading in spot and forward transactions was $50 billion in January as against $40 billion in December. Nonresidents’
activity was $20 billion, accounting for 40 percent of total trading in these instruments. The Bank of Israel purchased $1.6
 billion in January.[1]
Trading in over-the-counter forex options (those not traded on the Tel Aviv Stock Exchange) was $19 billion in January (as against $11 billion in December) and trading in swaps was $82 billion. The share of nonresidents in the total volume of trade (conversions, options, and swaps) was 60 percent in January as against 64 percent in December and 63 percent in

Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
January-11 (Not final) Total 50,377 81,608 19,403 151,388​
Daily average (21-days) 2,399 3,886 924 7,209
Nonresidents 20,251 62,784 8,192 91,227
of which Foreign financial institutions 19,752 62,779 7,961 90,492
Residents 30,126 18,824 11,211 60,161
of which Real sector 11,579 1,084 4,837 17,500
Financial sector 5,638 6,535 3,465 15,638
Institutions (incl. insurance companies) 3,116 2,512 128 5,756
Individuals and provident funds 1,055 725 427 2,207
The Bank of Israel 1,596     1,596
Otherc 938 77 197 1,212
Domestic banksd 6,204 7,891 2,157 16,252
December - '11 Total 39,878 95,378 11,010 146,266
Daily average (23-days) 1,734 4,147 479 6,359
Nonresidents 12,364 76,331 5,413 94,108
of which Foreign financial institutions 11,919 76,296 5,391 93,606
Residents 27,514 19,047 5,597 52,158
of which Real sector 10,076 1,943 1,794 13,813
Financial sector 5,539 7,118 1,329 13,986
Institutions (incl. insurance companies) 2,215 2,518 20 4,753
Individuals and provident funds 812 163 340 1,315
The Bank of Israel 2,304     2,304
Otherc 1,379 73 141 1,593
Domestic banksd 5,189 7,232 1,973 14,394
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 $500 million by the Bank of Israel in the last days of December, the value dates of which were in January