The representative rate of the EURO



The representative rate of the EURO


September 15, 1998


The Foreign Currency Department of the Bank of Israel announces that in the wake of the introduction of the Euro in the countries of the EMU, as of 4 January 1999 the Bank of Israel will publish a representative exchange rate for the Euro instead of one for the Ecu. As is the case with the representative rates of all the other currencies, that for the Euro will be published to the fourth digit after the decimal point. In addition, the Bank of Israel will continue to publish representative exchange rates for the national currencies of the countries which are members of EMU-Austria, Belgium, Finland, France, Germany, Holland, Ireland, and Spain. These will be calculated on the basis of the representative rate for the Euro, which will be determined daily by the Bank of Israel, and the conversion coefficients between the Euro and the national currencies that will be published by the European Central Bank at the end of 1998. The Bank of Israel states that there may be differences between the exchange rates of the currencies of the EMU members calculated in NIS (New Israeli Shekels) via the representative rate of the Euro and the representative rates published by the Bank of Israel and rounded to the fourth digit after the decimal point (see example below). The Foreign Currency Department recommends that the parties to agreements involving financial transactions indexed to the currencies of the relevant EU countries- such as taking indexed credit, making indexed deposits, making or receiving indexed payments-should determine in advance the way these currencies are to be converted into NIS. Queries may be addressed to the Foreign Currency Department at:

boisr_fx@bankisrael.gov.il

Example
(Note that the figures are not genuine, as the exchange rates and conversion coefficient have not yet been decided.) Assume that on January 31, 1999 the representative NIS/Euro rate is NIS 4.4849. Assume also that the conversion coefficient set by the European Central Bank for the DM/Euro rate at the end of 1998 is 1.96957. Consequently, the exchange rate for the DM, as calculated against the representative rate of the Euro and the conversion coefficient, is:
4.4849/1.96957 = 2.27709601588...
Nonetheless, the Bank of Israel publishes the representative rate after rounding the result (as is customary) to the fourth digit after the decimal point. Thus, the representative exchange rate of the NIS against the DM will be 2.2771, and any individual or business implementing a transaction involving conversion from NIS to DM, or vice versa, will have to decide how this is to be done. Path A: Conversion of DM 10 million into NIS at the representative rate published by the Bank of Israel:
DM 10,000,000 x 2.2771 = NIS 22,771,000
Path B: Conversion of DM 10 million into NIS at the representative rate for the Euro and the conversion coefficient:
DM 10,000,000 x (4.4849/1.96957) = NIS 22,770,960.16