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1. The Exchange Rate

Weakening of the shekel against
the dollar, in parallel with a strengthening of the dollar worldwide.

In December, the shekel weakened by
about 0.2 percent against the dollar, while strengthening by about 0.9 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 strengthened by about 0.5 percent in December.

Worldwide, the US dollar strengthened
markedly against most major currencies in December. The dollar strengthened by
1 percent against the euro, by 3.1 percent against the Japanese yen, by 0.5
percent against the Swiss franc, and by about 1.4 percent against the British
pound.

 

2. Exchange Rate Volatility

An increase in actual volatility
of the exchange rate in parallel with an increase in implied volatility.

The standard deviation of changes in
the shekel-dollar exchange rate, which represents its actual volatility,
increased by about 1.2 percentage points in December, to 7 percent at the end
of the month.

The average level of implied
volatility in over the counter shekel-dollar options increased by about 0.1
percentage points, to 7.4 percent at the end of December.

In parallel, the implied volatility in
foreign exchange options in emerging markets also increased, to an average of
about 11.8 percent, and the implied volatility in foreign exchange options in
advanced economies also increased, to about 10.3 percent at the end of December
(Figure 4).

The implied volatility in foreign
exchange options trading is an indication of expected exchange rate
volatility.

 

 

3. The Volume of Trade in the
Foreign Currency Market

Total trading volume increased, in
parallel with an increase in nonresidents’ relative share of total trading
volume.

 

Total trading volume in foreign
currency
in December was about $167 billion, compared with about $160
billion in November. Average daily trading volume increased by about 9 percent,
to about $7.9 billion.

 

The trading volume in spot and
forward transactions (conversions)
was about $33 billion in December.
Average daily trading volume in those transactions decreased in December by about
2 percent compared with November.

 

The trading volume in over the
counter foreign currency options
(which are not traded on the stock
exchange) totaled about $4.7 billion in December. The average daily trading
volume in those options was essentially unchanged compared with November, at about
$223 million.

 

The trading volume of swap
transactions
was about $129 billion in December, compared with about $118
billion in November. Average daily trading volume in swap transactions
increased by about 14 percent compared with the previous month, to around $6.1
billion.

 

Nonresidents’ share of total trade
(spot and forward transactions, options and swaps) increased to about 34.4 percent
at the end of December. The increase derived from an increase in the volume of
activity by nonresidents in swap transactions.