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Israels foreign currency market in February 2012
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1. The Exchange Rate
The shekel weakened against the dollar, while the dollar weakened around the world
The shekel depreciated by about 0.88 percent against the dollar during February, and weakened by about 2.8 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 weakened by about 1.9 percent.
In February, the dollar weakened against most major currencies in the world, weakening by 1.9 percent against the euro and by 1.1 percent against the pound sterling, while strengthening by about 5.1 percent against the Japanese yen.
2. Exchange Rate Volatility
Actual volatility of the exchange rate increased in February, while implied volatility decreased
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in February to 8.4 percent, compared with 6.9 percent in January.
The average level of the implied volatility in over the counter shekel-dollar optionsan indication of expected exchange rate volatilitydeclined in February, to 10.3 percent, compared with 11.32 percent in January.
For comparison, the implied volatility of foreign exchange options in emerging markets in February was 12.72 percent, down from 14.5 percent in January, and that in advanced economies was 10.44 percent, down from 11.75 percent in January.
3. The Volume of Trade in the Foreign Currency Market
There was a decline in overall volume, while there was an increase in nonresidents' share of trading volume
The total volume of trade in foreign currency in February was about $113.1 billion, compared with $128.9 billion in January. Average daily turnover declined about 13 percent in February, and reached about $5.4 billion.
The volume of trade in spot and forward transactions (conversions) was about $35.5 billion in February, compared with $40.6 billion in January. The average daily trading volume in those transactions declined in February by about 13 percent, 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 $12.2 billion in February, similar to the level of January. The average daily trading volume in those options in February was $584 million.
The trading volume of swap transactions was about $65 billion in February, compared with $76 billion in January. Average daily turnover declined about 14 percent to about $3.1 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in February, in contrast to the trend of recent quarters, and reached 44.1 percent, compared with 37.55 percent in January, 39.2 percent in December, and 40.4 percent in November. The increase was primarily in nonresidents' share of swap transactions, mainly as a result of a marked decline in the volume of activity by Israelis in those transactions.

Forex transactions with domestic banks, by instruments and derivatives ($ million)
    Conversions (1) Swapsa (2) Optionsb (3) Total volume of trade (1)+(2)+(3)
B1-12 Total 35,454 65,392 12,265 113,111
  Daily average (21 days) 1,688 3,114 584 5,386
(Not final) Nonresidents 13,617 30,019 6,318 49,954
  of which Foreign financial institutions 12,759 27,418 6,198 46,375
  Residents 21,837 35,373 5,947 63,157
  of which Real sector 5,511 2,046 2,641 10,198
  Financial sector 4,026 19,534 1,369 24,929
  Institutions (incl. insurance companies) 3,315 3,753 0 7,068
  Individuals and provident funds 573 196 291 1,060
  The Bank of Israel 0     0
  Otherc 2,871 25 79 2,975
  Domestic banksd 5,541 9,819 1,567 16,927
B1-12 Total 40,585 76,119 12,178 128,882
Daily average (21-days) 1,933 3,625 580 6,137
Nonresidents 14,433 27,706 6,258 48,397
of which Foreign financial institutions 13,613 26,420 5,708 45,741
Residents 26,152 48,413 5,920 80,485
of which Real sector 6,399 2,700 2,963 12,062
Financial sector 5,199 26,703 949 32,851
Institutions (incl. insurance companies) 4,326 4,350 10 8,686
Individuals and provident funds 902 398 293 1,593
The Bank of Israel 0     0
Otherc 2,845 6 61 2,912
Domestic banksd 6,481 14,256 1,644 22,381
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