BANK OF ISRAEL
Office of the Spokesperson and Economic Information
August 8, 2011
Israel’s foreign currency market in July 2011
Developments in the exchange rate––the dollar appreciated against the shekel
and the euro, but weakened against most other currencies
The shekel depreciated by about 0.4 percent against the dollar during July, and
appreciated by 1 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
depreciated by about 0.3 percent.
In July the dollar strengthened against the euro by 1.4 percent, but depreciated
against most other currencies, including a 1.8 percent depreciation against the pound
sterling.
The volatility of the shekel exchange rate––the actual and the implied volatility
of the exchange rate decreased in July
The standard deviation of changes in the shekel exchange rate, which represents its
actual volatility, decreased in July to about 9.1 percent, compared with 12.6 percent in
June.
The average level of the implied volatility in over the counter shekel-dollar options––
an indication of expected exchange rate volatility––also declined, and averaged about
11.2 percent in July, compared with an average of 12.9 percent in June. For
comparison, the implied volatility of foreign exchange options in both emerging
markets and advanced economies also fell, to 10.8 percent and 12.2 percent
respectively.
The volume of trade in the foreign currency market––a decline in trading
volume in swap transactions, and in nonresidents' share of total trade
The total volume of trade in foreign currency in July was about $116 billion,
compared with $129 billion in June and $113 billion in May. Average daily turnover
was $5.5 billion, compared with $6.2 billion in June and $5.6 billion in May.
POB 780, 91007 Jerusalem Tel: 972–2–6552713
www.bankisrael.org.il
The volume of trade in spot and forward transactions was $37 billion in July,
compared with $41 billion in June and about $43 billion in May. The average daily
trading volume in those transactions fell by about 9 percent in July compared with the
average in June, and reached $1.8 billion. In July, the Bank of Israel bought about
$225 million through these transactions.
The volume of trade in over the counter foreign currency options (which are not
traded on the stock exchange) totaled about $14 billion in July, compared with about
$13.2 billion in June. The average daily trading volume in those options increased by
about 4 percent compared with the June level, to $654 million.
Trading volume of swap transactions fell by 13 percent to about $65 billion in July,
from $75 billion in June. Average daily turnover decreased to about $3.1 billion.
Nonresidents' share of total trade (spot and forward transactions, options and
swaps) contracted by about 3 percentage points in July, to 47 percent of total trade,
compared with 50 percent in June and 51 percent in May.
Figure 1: Index of NIS/$ exchange rate, and the nominal
effective exchange rate*
115
NIS/$
110
Nominal effective
exchange rate
"100"=2/1/2008
105
100
95
90
85
07/11
05/11
03/11
01/11
11/10
09/10
07/10
05/10
03/10
01/10
11/09
09/09
07/09
05/09
03/09
01/09
11/08
09/08
07/08
05/08
03/08
01/08
80
* Calculated as the average shekel exchange rate against 28 currencies (representing 38 countries)
weighted according to the volume of trade with those countries.
Figure 2: Rate of change of exchange rates of various
currencies against the dollar*,July 2011
Iceland
Poland
Czech Republic
Hungary
The Philippines
Indonesia
Thailand
Taiwan
Israel
South Korea
Singapore
Mexico
New Zealand -4.4%
Norway
Sweden
Canada
Australia
Switzerland
UK
Japan
Eurozone
1.0%
2.3%
0.9%
3.2%
-2.7%
-0.9%
-3.2%
0.3%
0.4%
-1.3%
-1.9%
0.0%
1.0%
0.6%
-1.4%
-1.9%
-3.8%
-1.8%
-3.5%
* Based on Reuters exchange rate data.
1.4%
Figure 3: Standard deviation of change in exchange rate
(20 trading days)
24%
20%
16%
12%
8%
4%
0%
02/01/2008
24/06/2008
18/12/2008
24/06/2009
14/12/2009
14/06/2010
08/12/2010
03/06/2011
Figure 4: International comparison of implied volatility of
shekel/dollar options
32%
Average of emerging markets
28%
Average of advanced
economies
Israel
24%
20%
16%
12%
8%
4%
26/12/2007
26/06/2008
26/12/2008
26/06/2009
26/12/2009
26/06/2010
26/12/2010
26/06/2011
Emerging markets: Chile, Hungary, Mexico, the Philippines, Poland, Singapore, South Africa, South Korea,
Thailand and Turkey.
Advanced economies: Australia, Canada, the eurozone, Japan, UK, Switzerland.
Forex transactions with domestic banks, by instruments and derivatives ($ million)
Conversions
(1)
Swapsa
(2)
Optionsb
(3)
Total
volume of
trade
(1)+(2)+(3)
Daily average (21 days)
37,479
1,785
65,164
3,103
13,729
654
116,372
5,542
Nonresidents
12,950
34,483
7,258
54,691
of which Foreign financial institutions
12,550
33,236
6,855
52,641
Residents
24,529
30,681
6,471
61,681
of which Real sector
8,740
1,771
3,144
13,655
Financial sector
5,251
14,396
1,049
20,696
Institutions (incl. insurance companies)
2,790
3,135
100
6,025
343
266
The Bank of Israel
803
225
1,412
225
Otherc
495
47
41
583
6,225
10,989
1,871
19,085
41,008
75,272
13,161
129,441
1,953
3,584
627
6,164
Nonresidents
15,922
41,942
6,977
64,841
of which Foreign financial institutions
15,095
41,560
6,867
63,522
Residents
25,086
33,330
6,184
64,600
of which Real sector
9,814
3,072
2,384
15,270
Financial sector
6,137
15,456
1,134
22,727
Institutions (incl. insurance companies)
1,473
3,978
2
5,453
367
343
The Bank of Israel
659
320
1,369
320
Otherc
392
99
32
523
6,291
10,358
2,289
18,938
Total
July-11 (Not final)
Individuals and provident funds
Domestic banksd
Total
Daily average (21-days)
June-11
Individuals and provident funds
Domestic banksd
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