Israel's foreign currency market in March 2011

                                                                                                                                                                  10.04.2011
 
Israel’s foreign currency market in March 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 3.9 percent against the dollar during March, and by 1.2 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 2.6 percent.
At the same time the dollar depreciated against most of the major currencies––by 2.8 percent against the euro, and by 1.5 percent against the Swiss franc. The dollar appreciated by 1 percent against the pound sterling, and by 1.1 percent against
 the yen.
The volatility of the exchange rate––the actual and the implied volatility of the exchange rate decreased in
March
The standard deviation of changes in the exchange rate, which represents its actual volatility, continued to decline in March,
 and reached 6.3 percent, and drop of about 3 percentage points from the February level.
The average level of the implied volatility in OTC (over the counter) forex options––an indication of expected exchange rate volatility––averaged about 9.7 percent in March, compared with an average of 10.9 percent in February. For comparison,
 the implied volatility of the foreign exchange options of emerging markets averaged 11.1 percent in March, and of advanced economies, 10.6 percent.
The volume of trade in the foreign currency market––a continued decline in the daily volume of trade, and a
drop in nonresidents’ relative share of trade
The total volume of trade in foreign currency in March was about $118 billion, compared with of about $112 billion in
February and $154 billion in January. The average daily turnover continued to fall in March, and reached $5.3 billion, down
 from $5.6 billion in February and $7 billion in January. The volume of trade in spots and forward transactions declined in the
 past two months, and in March was $41 billion, compared with $45 billion in February and about $51 billion in January. Nonresidents' transactions in spots and forwards totaled some $15 billion in March, accounting for 37 percent of the trade in these instruments, compared with about 43 percent in February. The Bank of Israel purchased about $200 million of foreign currency in March.
The volume of trade in OTC foreign currency options (which are not traded on the stock exchange) totaled about $12 billion
 in March, compared with about $16 billion in February, and the volume of swap transactions was about $64 billion.
Nonresidents' share of total trade (spots and forward transactions, options and swaps) declined further to 47 percent of the
total trade in March, compared with 51 percent in February and 60 percent in January.
In this context it should be mentioned that at the end of January 2010 the Bank of Israel announced new policy measures
 relating to the foreign exchange market and the debt instruments market: the intention to impose a new requirement to
 report transactions in foreign exchange and in debt instruments, and the imposition of a liquidity requirement for foreign exchange transactions that went into effect in February. At the same time the Ministry of Finance announced that it intended
 to equalize the tax rates on short-term debt instruments applicable to nonresidents and residents.
 




 
Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
March-11 (Not final) Total 41,814 63,755 12,432 118,001
Daily average (20-days) 1,901 2,898 565 5,364
Nonresidents 15,528 34,203 5,819 55,550
of which Foreign financial institutions 15,276 34,193 5,786 55,255​
Residents 26,286 29,552 6,613 62,451
of which Real sector 10,085 4,074 3,119 17,278
Financial sector 6,440 10,140 926 17,506
Institutions (incl. insurance companies) 3,016 3,032 0 6,048
Individuals and provident funds 734 184 254 1,172
The Bank of Israel 200     200
Otherc 780 55 111 946
Domestic banksd 5,031 12,067 2,203 19,301
           
February- '10 Total 45,395 50,888 15,884 112,167
Daily average (21-days) 2,270 2,544 794 5,608
Nonresidents 19,441 29,059 9,015 57,515
of which Foreign financial institutions 19,330 29,008 8,935 57,273
Residents 25,954 21,829 6,869 54,652
of which Real sector 9,599 1,677 2,679 13,955
Financial sector 6,347 7,365 2,155 15,867
Institutions (incl. insurance companies) 2,355 2,921 75 5,351
Individuals and provident funds 802 229 271 1,302
The Bank of Israel 200     200
Otherc 529 52 204 785
Domestic banksd 6,122 9,585 1,485 17,192
 
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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