Israel’s foreign currency market in October 2012

 

1. The Exchange Rate

The shekel strengthened against the dollar, as the dollar traded mixed against currencies worldwide

 

The shekel appreciated by about 0.9 percent against the dollar and by about 0.5 percent against the euro during October. 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 strengthened by about 0.9 percent.

In October, the dollar traded mixed against most currencies in the world, weakening by 0.4 percent against the euro and by 0.5 percent against the Swiss franc, while strengthening by 0.7 percent against the pound sterling, and by 2.8 percent against the Japanese yen.

 

 

2. Exchange Rate Volatility

Actual volatility of the exchange rate declined, in parallel with a decline in implied volatility

 

The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined in October to 6.3 percent, compared with 7.9 percent in September.

The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––decreased slightly in October to about 9.2 percent, compared with about 9.3 percent in September.

For comparison, the implied volatility of foreign exchange options in emerging markets in October was 9.5 percent on average, compared with 10.6 percent in September, and that in advanced economies was 7.7 percent, down from 8.2 percent in September.

 

 

 

 

 

3. The Volume of Trade in the Foreign Currency Market

There was a decline in average daily trading volume, with an increase in nonresidents' share of trading volume

 

The total volume of trade in foreign currency in October was about $96 billion, compared with $76 billion in September. Average daily trading volume decreased by about 3 percent in October, and reached about $4.6 billion.

 

The volume of trade in spot and forward transactions (conversions) was about $35 billion in October, compared with $28 billion in September. The average daily trading volume in those transactions declined by about 4 percent in October compared with September, to $1.7 billion.

 

The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $10 billion in October, compared with $7 billion in September. The average daily trading volume in those options in October was $467 million, an increase of 9 percent from September.

 

The trading volume of swap transactions was about $51 billion in October, compared with $42 billion in September. Continuing the trend of the past few months, average daily turnover of swap transactions continued to decline, to about $2.4 billion, compared with $2.5 billion in September.

 

Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in October to about 49 percent, compared with about 45 percent in September and about 50 percent in August.

​

 

 

Forex transactions with domestic banks, by instruments and sectors ($ million)
		Conversions (1)	Swapsa (2)	Optionsb (3)	Total volume of trade (1)+(2)+(3)
	Total	35,321	51,064	9,803	96,188
	Daily average (21 days)	1,682	2,432	466.809524	4,580
	Nonresidents	13,655	28,140	5,263	47,058
	of which Foreign financial institutions	12,644	27,439	4,974	45,057
	Residents	21,666	22,924	4,540	49,130
	of which Real sector	6,494	2,622	1,854	10,970
Oct-12	Financial sector	4,398	11,911	591	16,900
(Not final)	Institutions (incl. insurance companies)	2,579	3,976	70	6,625
	Individuals and provident funds	559	536	412	1507
	The Bank of Israel	0			0
	Otherc	2,865	77	163	3,105
	Domestic banksd	4,771	3,802	1,450	10,023
Sep-12	Total	28,156	40,861	6,865	75,882
	Daily average (16 days)	1,760	2,554	429.0625	4,743
	Nonresidents	10,388	20,729	3,200	34,317
	of which Foreign financial institutions	9,904	20,537	3,009	33,450
	Residents	17,768	20,132	3,665	41,565
	of which Real sector	5,790	2,119	1,695	9,604
	Financial sector	3,630	9,057	527	13,214
	Institutions (incl. insurance companies)	1,399	3,834	1	5,234
	Individuals and provident funds	429	278	215	922
	The Bank of Israel	0			0
	Otherc	2,652	79	190	2,921
	Domestic banksd	3,868	4,765	1,037	9,670
	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 2 e As of the September 09 press release, trading volume data is identical to the monthly data published on the website.  For more information: see here Likewise, as of the same month, broader sectorial data on Israeli residents is presented.
	.