Israel's foreign currency market in December 2011

                                                                                                                                                                08.01.2012
 
Israel’s foreign currency market in December 2011
 
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1. The Exchange Rate
The shekel depreciated against the dollar in line with the strengthening of the dollar around the world
The shekel depreciated by about 0.7 percent against the dollar during December, and appreciated by about 2.3 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 0.5 percent.
In December, the dollar strengthened by 3 percent against the euro, by 1.25 percent against the pound sterling, and by
about 2 percent against the Swiss franc.
In 2011, the shekel weakened against the dollar by about 7.6 percent and weakened against the euro by about 4.2 percent.
In terms of the nominal effective exchange rate, the shekel depreciated by about 4.8 percent.
2. Exchange Rate Volatility
Actual volatility of the exchange rate increased in December, while implied volatility was unchanged
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in December to 7.5 percent, compared with 6.5 percent in November, and 9.4 percent in October. Over the course of 2011,
the shekel-dollar exchange rate was more volatile than in 2010. In 2011, the average standard deviation was 9.3 percent, compared with an average standard deviation of 6.6 percent in 2010, 11.2 percent in 2009, and 14.7 percent in 2008.
The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––was unchanged in December, at 12 percent. For comparison, the implied volatility of foreign exchange options in emerging markets in December fell to 16 percent, from 17 percent in November, and that in advanced economies was 13
percent, down from 13.8 percent in November.
Over the course of 2011, the implied volatility of over the counter shekel-dollar options was 11 percent, compared with 8
percent in 2010.
3. The Volume of Trade in the Foreign Currency Market
The total average daily volume of trade increased in December, while there is an extended decline in
nonresidents' share of the total trade.
The total volume of trade in foreign currency in December was about $137 billion, compared with $129 billion in
November and $118 billion in October. Average daily turnover increased in December, and reached about $6.5 billion, up
from $5.9 billion in November and about $6.6 billion in October.
The volume of trade in spot and forward transactions (conversions) was about $39.2 billion in December, compared
with $41.3 billion in November. The average daily trading volume in those transactions was $1.9 billion, similar to its level in November.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $10 billion in December, compared with $10.5 billion in November. The average daily trading volume in those options
was nearly unchanged, at $472 millions.
The trading volume of swap transactions was about $87 billion in December, compared with $77 billion in November.
Average daily turnover increased by about 19 percent to about $4.2 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) continued to decline, reaching
39.3 percent in December, compared with 40.3 percent in November and 43 percent in October.
Developments in the foreign currency market for the full year of 2011
The average monthly volume of trade in foreign currency in 2011 was about $126 billion, compared with $109 billion in 2010, $87 billion in 2009, and $96 billion in 2008.
The average monthly volume of swap transactions was about $71 billion in 2011, compared with $63 billion in 2010,
and $40 billion in 2009.
The average monthly volume of trade in spot and forward transactions (conversions) was about $42 billion in 2011, compared with a monthly average of $34 billion in 2010, $36.8 billion in 2009, and $41.5 billion in 2008.
The average monthly volume of trade in over the counter foreign currency options (which are not traded on the
stock exchange) totaled about $13 billion in 2011, compared with $12 billion in 2010.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined to 47 percent in 2011, compared with 62 percent in 2010 and 54 percent in 2008 and 2009. The decline was primarily in the share of trade in swap transactions, while nonresidents' share of conversions (spot and forward transactions), at 35 percent, remained around
the levels of previous years—around 37 percent in 2010, 34 percent in 2009, and 36 percent in 2008.
 





 
Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
B1דצמבר-11 Total 39,189 87,777 9,907 136,873
(Not final) Daily average (21 days) 1,866 4,180 472 6,518
  Nonresidents 10,267 39,259 4,262 53,788
  of which Foreign financial institutions 9,381 37,555 4,158 51,094​
  Residents 28,922 48,518 5,645 83,085
  of which Real sector 10,043 1,704 1,487 13,234
  Financial sector 6,366 30,895 1,040 38,301
  Institutions (incl. insurance companies) 3,870 4,078 495 8,443
  Individuals and provident funds 945 419 179 1,543
  The Bank of Israel 0     0
  Otherc 525 89 216 830
  Domestic banksd 7,173 11,333 2,228 20,734
           
B1נובמבר-11 Total 41,277 77,199 10,409 128,885
Daily average (22-days) 1,876 3,509 473 5,858
Nonresidents 13,684 33,489 4,838 52,011
of which Foreign financial institutions 12,858 33,466 4,784 51,108
Residents 27,593 43,710 5,571 76,874
of which Real sector 8,899 2,099 2,107 13,105
Financial sector 7,223 24,102 778 32,103
Institutions (incl. insurance companies) 2,951 2,428 842 6,221
Individuals and provident funds 626 207 361 1,194
The Bank of Israel 0     0
Otherc 636 30 73 739
Domestic banksd 7,258 14,844 1,410 23,512
 
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