Explanatory Notes to the Representative Exchange Rates
Explanatory Notes to the Representative Exchange Rates[1]
Representative rates are indicative exchange rates of foreign currencies in terms of NIS. The representative rate of any currency is an indicator of the exchange rate prevailing in the foreign exchange market;[2] it is based on an average of buying and selling prices published by banks, and does not necessarily reflect rates at which transactions were carried out. The rates have no official or legal standing, and are not published in the Official Gazette. They are used mainly for valuations and in contracts. Parties to a foreign-currency-indexed business transaction may carry out the transaction at any exchange rate agreed between them. The representative rate is binding for such a transaction only if explicitly stipulated in advance by the parties.
Several countries which have interbank foreign-currency trading also publish representative exchange rates, including the European Central Bank (ECB) and the Swiss National Bank (SNB).
The Bank of Israel calculates representative exchange rates once a day on foreign-currency business days only, and makes them available to the general public as a purely informational service. There are no representative rates on Saturdays, Sundays, Israeli holidays, Christmas Day, New Year’s Day and Easter, when foreign-exchange markets are closed in most countries.[3] There may, of course, be other occasions when representative rates cannot be published due to lack of data or because there has been no trade in foreign currency, or for other reasons, and the bank has no obligation to publish representative rates on any specific date.
Information on the new rates of exchange is normally available in the afternoon (see below). The time is not fixed, however, and the rates may be calculated and made available to the public at other times. It is therefore advisable for the parties to a transaction linked to the representative rate to stipulate in advance what the relevant rate is to be: for example, the one published on the date of the transaction, the latest published rate before the date on which transaction is carried out, or the rate published on a certain date before or after the date of the transaction.
Until May 23, 1990 the representative rate of the US dollar on a certain date was calculated as the average of the commercial banks’ quoted buying and selling rates (transfers and checks) as reported by the banks to the Bank of Israel. As of May 24, 1990, when multilateral trading in US dollars against NIS between the Bank of Israel and the banks was introduced, and until multilateral trading was canceled, the representative rate for a given day was the rate at which the daily trading session closed. Multilateral trading between the banks and the Bank of Israel came to an end on April 3, 1995, and all trading since then has been on a continuous bilateral basis.[4] The system of determining the representative rate was adjusted at the same time, and the representative rate of the NIS against the US dollar for a specific day is now the average rate in NIS of bilateral interbank trading during a predetermined sampling period.
The average rate in NIS is calculated on the basis of a sampling of exchange rates published by the banks on the Reuters screens, taken at a random moment, which is currently between[5] 13:15 and 15:15 (or between 10:15 and 12:15 on Fridays, holiday eves and some other Jewish holidays). The representative exchange rate is currently published soon after 15:15 (or soon after 12:15 on Fridays, holiday eves and some other Jewish holidays). The representative rate is calculated from the average of the banks sampled, and excludes values which deviate from the sample average by more than two standard deviations. In exceptional cases, when the calculated exchange rate does not reflect actual rates prevailing in the market, discretion may be exercised in determining the representative rate.
The representative rates of the NIS against other currencies are based on the representative rate of the US dollar and the exchange rates of the relevant currencies against the US dollar on the international money markets at the moment the representative rate is determined. Consequently, the relationship between the various representative rates reflects the relationship between spot exchange rates abroad at the time they are determined.
The above notwithstanding, the Bank of Israel reserves absolute and sole discretion to make any changes it sees fit in the representative rates, the process by which they are determined and/or the means by which they are made public, without any obligation and without prior notice.
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[2] The representative rate of a foreign currency is not necessarily identical with any of its commercial exchange rates, e.g., rates quoted by commercial banks to their customers, buying and selling rates of banknotes, checks and transfers, or interbank rates.
[3] Until July 31, 1986 no representative rate was published for the currency of a country on its national holidays.
[4] For the transition to the continuous bilateral trading system, see the 1994 publication of “Foreign Currency Exchange Rates in Israel,” pp.xv-xviii.
[5] Until February 20, 2006 the sampling period was one hour, between 14.15 and 15.15 (or between 11.15 and 12.15 on Fridays, holiday eves and some other Jewish holidays).