Israel's foreign currency market in October 2011

Israel’s foreign currency market in October 2011
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Developments in the exchange rate––the shekel appreciated against the dollar in line with the weakening of

the dollar around the world

The shekel appreciated by about 2.9 percent against the dollar during October, and remained basically unchanged 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 percent.

The dollar weakened by 3 percent against the euro, and by 2.5 percent against the pound sterling, but against the yen it strengthened by about 2 percent.

The volatility of the shekel exchange rate––the actual and the implied volatility of the exchange rate decreased

 in October

The standard deviation of changes in the shekel exchange rate, which represents its actual volatility, decreased in October

 to about 9.4 percent, compared with 9.7 percent in September.

The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––also declined in October, to 11.3 percent, compared with 12.4 percent in September. For comparison, the implied volatility of foreign exchange options in emerging markets in October was 17.3 percent, compared with 15.5 percent in September, and that in advanced economies was 14.1 percent, close with 14 percent in September.
The volume of trade in the foreign currency market––the total volume of trade declined in October, with nonresidents accounting for an increased share of the total.

The total volume of trade in foreign currency in October was about $118 billion, compared with $132 billion in

 September. Average daily turnover fell in October to about $6.5 billion, down from $7 billion in September.

The volume of trade in spot and forward transactions (conversions) was about $35.5 billion in October, compared

 with $46.3 billion in September. The average daily trading volume in those transactions dropped by about 20 percent in

 October from its September level, and reached $2 billion.


The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $8.6 billion in October, compared with about $11.1 billion in September. The average daily trading volume in those

options dropped by about 18 percent compared with the September level, to $479 million.

The trading volume of swap transactions dipped from about $75 billion in September to $74 billion in October. Average

 daily turnover increased by about 4 percent to about $4.1 billion.

Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in October, reversing

the trend of the previous quarter and reached 43 percent, compared with 41 percent in September, 43 percent in August,

and 47 percent in July.


Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
B1אוקטובר-11 Total 35,511 73,686 8,618 117,815
(Not final) Daily average (18 days) 1,973 4,094 479 6,545
  Nonresidents 11,232 35,386 4,554 51,172
  of which Foreign financial institutions 10,640 33,349 4,433 48,422
  Residents 24,279 38,300 4,064 66,643
  of which Real sector 8,212 2,032 1,831 12,075
  Financial sector 6,845 21,205 591 28,641
  Institutions (incl. insurance companies) 3,340 2,335 152 5,827
  Individuals and provident funds 505 749 199 1,453
  The Bank of Israel 0     0
  Otherc 284 14 155 453
  Domestic banksd 5,093 11,965 1,136 18,194
B1ספטמבר-11 Total 46,314 75,026 11,137 132,477
Daily average (19 days) 2,438 3,949 586 6,972
Nonresidents 15,844 33,568 5,460 54,872
of which Foreign financial institutions 14,949 32,822 5,240 53,011
Residents 30,470 41,458 5,677 77,605
of which Real sector 9,814 1,764 2,235 13,813
Financial sector 8,251 25,517 1,618 35,386
Institutions (incl. insurance companies) 2,746 3,779 0 6,525
Individuals and provident funds 728 263 502 1,493
The Bank of Israel 0     0
Otherc 449 10 61 520
Domestic banksd 8,482 10,125 1,261 19,868
  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