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Israel’s foreign currency market in June 2011

By Bank of IsraelJul 18, 2011 03:00AM ET
Developments in the exchange rate––the shekel appreciated against the dollar in line with the weakening of the dollar world wide

The shekel appreciated by about 0.6 percent against the dollar during June, and appreciated by 0.14 percent against the euro. In June, the dollar weakened against most currencies, including 0.4 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 0.5 percent.

The volatility of the exchange rate––the actual and the implied volatility of the exchange rate increased in June
The standard deviation of changes in the exchange rate, which represents its actual volatility, rose slightly in June to about 12.8 percent, compared with 12.3 percent in May.

The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––also rose, and averaged about 12 percent in June, compared with an average of 10 percent in May. For comparison, the implied volatility of the foreign exchange options in both emerging and developed markets rose slightly, as the figure averaged 11 percent in June in emerging markets, and 13 percent in developed markets.
The volume of trade in the foreign currency market––an increase in the total volume of trade, and an increase in the trading volume in swap transactions
The total volume of trade in foreign currency rose in June to about $129 billion, compared with $113 billion in May and 111 billion in April. Average daily turnover increased to $6.2 billion, compared with $5.6 billion in May and $6.5 billion in April.

The volume of trade in spot and forward transactions was $41 billion in June, compared with $43 billion in May and about $33 billion in April. With that, the average daily trading volume in those transactions fell by about 9 percent in June, compared with May, and reached $1.9 billion. In June, the Bank of Israel bought about $320 million[1] through these transactions.

The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $13 billion in June, compared with about $12 billion in May. The average daily trading volume in those options rose about 6 percent compared with May, to $625 million.
Trading volume of swap transactions rose 28 percent to about $75 billion in June, compared with $58 billion in May. Average daily turnover increased 23 percent to about $3.5 billion.

Nonresidents' share of total trade (spot and forward transactions, options and swaps) was nearly unchanged in June, at 50 percent of total trade, compared with 51 percent in May, and 50 percent in April.
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