Israel's foreign currency market in February 2011

                                                                                                                                                                  08.03.2011
 
Israel’s foreign currency market in February 2011
 
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Developments in the exchange rate––the shekel appreciated against the dollar in line with the weakening of
the dollar world wide.
The shekel appreciated by about 2.4 percent against the dollar during February, and by 1.4 percent against the euro.
Against the currencies of Israel's main trading partners, in terms of the nominal effective exchange rate of the shekel, i.e.,
the trade-weighted average shekel exchange rate against those currencies, the shekel appreciated by about 1.7 percent.
At the same time the dollar depreciated against most of the major currencies––by 1.0 percent against the euro, by 2.1
percent against the pound sterling, and by 1.3 percent against the against the Swiss franc.
The volatility of the exchange rate––the implied volatility of the exchange rate increased in February
The standard deviation of changes in the exchange rate, which represents its actual volatility, declined slightly in February,
 to 9.5 percent, compared with 10.6 percent in January and 4.8 percent in December.
The average level of the implied volatility in OTC (over the counter) forex options––an indication of expected exchange rate volatility––averaged about 10.9 percent in February, compared with an average of 9.3 percent in January and 8.5 percent in December. For comparison, the implied volatility of the foreign exchange options of emerging markets averaged 11.6
percent in February, and of advanced economies, 10.6 percent.
The volume of trade in the foreign currency market––lower volumes of trade than in the previous months, and
a drop in the relative share of trade by nonresidents
The total volume of trade in foreign currency in February was about $111 billion, lower than the high levels in the last few
months, particularly the figure of about $153 billion in January and $146 billion in December. The volume of trade in spots
and forward transactions totaled about $45 billion in February, compared with about $51 billion in January. Nonresidents' transactions in spots and forwards totaled some $19 billion in February, accounting for 42 percent of the trade in these instruments. The Bank of Israel purchased $200 million of foreign currency in February.
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $16 billion
in February, compared with about $20 billion in January, and the volume of swap transactions was about $51 billion.
Nonresidents' share of total trade (spots and forward transactions, options and swaps) was a relatively low 51 percent of the
 total trade in February, compared with 60 percent in January and 64 percent in December. It should be noted that at the
 end of January 2011 the Bank of Israel issued new policy measures in the foreign currency and debt instruments markets:
a new obligation to report transactions in foreign currency and debt instruments, and a liquidity requirement on foreign
currency transactions. The Ministry of Finance announced that it intends to act towards bringing the tax rates for
nonresidents into line with those for residents on short-term debt instruments.
 




 
Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
Febuary-11 (Not final) Total 44,805 50,769 15,762 111,336
Daily average (20-days) 2,240 2,538 788 5,567
Nonresidents 19,024 28,979 8,900 56,903
of which Foreign financial institutions 18,914 28,928 8,820 56,662
Residents 25,781 21,790 6,862 54,433
of which Real sector 9,549 1,682 2,641 13,872
Financial sector 6,242 7,177 2,155 15,574
Institutions (incl. insurance companies) 2,289 2,956 75 5,320
Individuals and provident funds 801 229 297 1,327
The Bank of Israel 200     200
Otherc 533 54 197 784​
Domestic banksd 6,167 9,692 1,497 17,356
           
January- '10 Total 51,197 81,610 20,354 153,161
Daily average (21-days) 2,438 3,886 969 7,293
Nonresidents 21,026 62,784 8,256 92,066
of which Foreign financial institutions 20,881 62,779 8,077 91,737
Residents 30,171 18,826 12,098 61,095
of which Real sector 11,693 1,100 4,901 17,694
Financial sector 5,613 6,534 4,299 16,446
Institutions (incl. insurance companies) 3,120 2,512 128 5,760
Individuals and provident funds 1,059 725 434 2,218
The Bank of Israel 1,596     1,596
Otherc 913 64 205 1,182
Domestic banksd 6,177 7,891 2,131 16,199
 
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
 
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