Israel’s foreign currency market in January 2012

Israel’s foreign currency market in January 2012


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1. 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 2.3 percent against the dollar during January, and weakened by about 0.3 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 0.3 percent.
In January, the dollar weakened against most major currencies in the world, weakening by 2 percent against the euro, by 2.3 percent against the pound sterling, and by about 1.5 percent against the Japanese yen.
2. Exchange Rate Volatility
Actual volatility of the exchange rate declined in January, as did implied volatility
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined in January to 6.9 percent, compared with 7.5 percent in December.
The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––also declined in January, to 11.3 percent, compared with 12 percent in December.
For comparison, the implied volatility of foreign exchange options in emerging markets in January was 14 percent, down from 16 percent in December, and that in advanced economies was 11.3 percent, down from 13.1 percent in December.
3. The Volume of Trade in the Foreign Currency Market
There was a continued decline in the volume of swap transactions as well as in nonresidents’ share of those transactions, while there was an increase in January of nonresidents’ share of spot and forward transactions
The total volume of trade in foreign currency in January was about $128.8 billion, compared with $137 billion in December and $129 billion in November. Average daily turnover declined in January, and reached about $6.1 billion, compared with $6.5 billion in December and about $5.8 billion in November.
The volume of trade in spot and forward transactions (conversions) was about $40.5 billion in January, compared with $39.3 billion in December. The average daily trading volume in those transactions increased in January by about 3 percent, to $1.9 billion.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $12.2 billion in January, compared with $9.9 billion in December. The average daily trading volume in those options increased by 22 percent compared with December, to $580 million.
The trading volume of swap transactions was about $76 billion in January, compared with $88 billion in December. Average daily turnover declined about 13 percent to about $3.6 billion.
Nonresidents’ share of total trade (spot and forward transactions, options and swaps) declined in January, continuing the trend of the recent quarter, and reached 37.6 percent, compared with 39 percent in December, 40.3 percent in November, and 43.4 percent in October.



Forex transactions with domestic banks, by instruments and derivatives ($ million)

    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
April-11 (Not final) Total 40,576 76,069 12,177 128,822
Daily average (21 days) 1,932 3,622 580 6,134
Nonresidents 14,433 27,706 6,258 48,397
of which Foreign financial institutions 13,613 26,420 5,708 45,741
Residents 26,143 48,363 5,919 80,425
of which Real sector 6,400 2,700 2,959 12,059
Financial sector 5,198 26,703 949 32,850
Institutions (incl. insurance companies) 4,326 4,350 10 8,686
Individuals and provident funds 893 398 296 1,587
The Bank of Israel 0     0
Otherc 2,845 6 61 2,912
Domestic banksd 6,481 14,206 1,644 22,331
(March 2011 Total 39,355 87,994 9,920 137,269
Daily average (21-days) 1,874 4,190 472 6,537
Nonresidents 10,267 39,259 4,262 53,788
of which Foreign financial institutions 9,381 37,555 4,158 51,094
Residents 29,088 48,735 5,658 83,481
of which Real sector 7,199 2,116 1,500 10,815
Financial sector 6,366 30,895 1,035 38,296
Institutions (incl. insurance companies) 4,017 4,089 495 8,601
Individuals and provident funds 940 419 184 1,543
The Bank of Israel 0     0
Otherc 3,407 89 216 3,712
Domestic banksd 7,159 11,127 2,228 20,514


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