Israel's foreign currency market in May 2012

Israel’s foreign currency market in May 2012
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1. The Exchange Rate
The shekel weakened against the dollar, while the dollar strengthened notably against global currencies
The shekel depreciated by about 3.5 percent against the dollar during May, and strengthened by about 2.9 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 weakened by about 0.4 percent.
In May, the dollar strengthened markedly against most major currencies in the world, strengthening 6.6 percent against the euro and by 6.5 percent against the Swiss franc, and about 4.9 percent against the pound sterling, while it weakened by 1.7 percent against the Japanese yen.
2. Exchange Rate Volatility
Actual volatility of the exchange rate increased
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in May to 5.4 percent, compared with 3.7 percent in April.
The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––declined in May to 8.3 percent, compared with 8.7 percent in April.
For comparison, the implied volatility of foreign exchange options in emerging markets in May was 11.9 percent, up from 11.2 percent in April, and that in advanced economies was 10.2 percent, up from 9.7 percent in April.
3. The Volume of Trade in the Foreign Currency Market
There was a decline in average daily volume, along with a decline in nonresidents' share of trading volume
The total volume of trade in foreign currency in May was about $130 billion, compared with $99 billion in April. Average daily trading volume declined by about 2.7 percent in May, and reached about $5.7 billion.
The volume of trade in spot and forward transactions (conversions) was about $36.3 billion in May, compared with $28.3 billion in April. The average daily trading volume in those transactions declined in May by about 5 percent, compared with April, to $1.58 billion.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $13 billion in May, compared with $6 billion in April. The average daily trading volume in those options in May was $570 million, an increase of 68 percent from April.
The trading volume of swap transactions was about $81 billion in May, compared with $65.5 billion in April. Average daily turnover declined by about 8 percent to about $3.5 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined in May to 39 percent, compared with 46 percent in April and 42 percent in March. The decrease was primarily in the nonresidents' share of swap transactions, with a decrease in May of 29 percent in the average daily turnover by nonresidents in such transactions.

Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
May -12 (Not final) Total 36,347 81,494 13,107 130,948
Daily average (23 days) 1,580 3,543 570 5,693
Nonresidents 13,338 32,881 5,056 51,275
of which Foreign financial institutions 12,477 31,881 4,880 49,238
Residents 23,009 48,613 8,051 79,673
of which Real sector 6,885 2,158 3,073 12,116
Financial sector 4,927 28,977 1,848 35,752
Institutions (incl. insurance companies) 2,181 5,158 590 7,959
Individuals and provident funds 591 130 407 1,128
The Bank of Israel 0     0
Otherc 3,284 19 94 3,397
Domestic banksd 5,141 12,141 2,039 19,321
April - 12 Total 28,272 65,433 5,771 99,476
Daily average (17-days) 1,663 3,849 339 5,852
Nonresidents 9,583 33,983 2,763 46,329
of which Foreign financial institutions 8,891 33,503 2,669 45,063
Residents 18,689 31,450 3,008 53,147
of which Real sector 5,841 2,608 1,068 9,517
Financial sector 3,543 18,756 585 22,884
Institutions (incl. insurance companies) 2,317 2,886 1 5,204
Individuals and provident funds 515 314 282 1,111
The Bank of Israel 0     0
Otherc 2,609 15 34 2,658
Domestic banksd 3,864 6,871 1,038 11,773
  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