Israel's foreign currency market in May 2011

Israel’s foreign currency market in May 2011
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Developments in the exchange rate––the shekel depreciated against the dollar in line with the strengthening
of the dollar world wide
The shekel depreciated by about 1.2 percent against the dollar during May, and appreciated by 1.7 percent against the
euro. In May, the dollar strengthened against most currencies, including a 3 percent appreciation against the euro and 1
percent against the pound sterling.
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 0.2 percent.
The volatility of the exchange rate––the actual and the implied volatility of the exchange rate increased in May
The standard deviation of changes in the exchange rate, which represents its actual volatility, rose in May by about 7
percentage points and reached 12.3 percent.
The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––also rose, and averaged about 10.2 percent in May, compared with an average of 9.5 percent in April. For
comparison, the implied volatility of the foreign exchange options in both emerging and developed markets also rose, as the figure averaged 11 percent in May in emerging markets, and 12 percent in developed markets.
The volume of trade in the foreign currency market––a decrease in average trading volume in swap
transactions, and an increase in spot and forward transaction volume
The total volume of trade in foreign currency in May was about $113 billion, compared with $111 billion in April and
about $118 billion in March. Average daily turnover decreased to $5.6 billion, compared with $6.5 billion in April and $5.3
 billion in March.
The volume of trade in spot and forward transactions was $42.6 billion in May, compared with $33 billion in April and about
 $42 billion in March. With that, the average daily trading volume in those transactions rose by 9 percent in May, compared
 with April, and reached $2 billion. In May, the Bank of Israel bought about $305 million through these transactions[1].
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $11.7 billion in May, compared with about $11.1 billion in April. The average daily trading volume in those options fell
about 10 percent compared with April, to $588 million.
Trading volume of swap transactions was about $58 billion in May, a decrease of 25 percent in average daily turnover,
to about $2.9 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) rose slightly in May to 52 percent
 of total trade, compared with 50 percent in April, and 47 percent in March.

Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
May-11 (Not final Total 42,593 58,274 11,754 ​112,621
Daily average (20 days) 2,130 2,914 588 5,631
Nonresidents 15,353 36,827 5,830 58,010
of which Foreign financial institutions 15,016 36,729 5,723 57,468
Residents 27,240 21,447 5,924 54,611
of which Real sector 10,062 2,600 2,842 15,504
Financial sector 5,873 8,158 1,035 15,066
Institutions (incl. insurance companies) 3,473 1,727 0 5,200
Individuals and provident funds 854 415 308 1,577
The Bank of Israel 305     305
Otherc 736 36 84 856
Domestic banksd 5,937 8,511 1,655 16,103
April- '11 Total 33,169 66,424 11,107 110,700
Daily average (17-days) 1,951 3,907 653 6,512
Nonresidents 10,515 40,362 4,590 55,467
of which Foreign financial institutions 10,090 40,349 4,374 54,813
Residents 22,654 26,062 6,517 55,233
of which Real sector 9,638 2,986 2,734 15,358
Financial sector 4,295 7,213 1,918 13,426
Institutions (incl. insurance companies) 2,477 3,694 60 6,231
Individuals and provident funds 535 660 264 1,459
The Bank of Israel 1,295     1,295
Otherc 371 49 18 438
Domestic banksd 4,043 11,460 1,523 17,026
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 about $105 million by the Bank of Israel in the last days of May, the value dates of which were in June.