Development of the exchange rate – strengthening of the shekel following the long-term trend
During the quarter, the shekel strengthened against the dollar by about 6.6%, following a long-term trend. At the same time, the shekel strengthened against the euro by about 2%.
Against the currencies of Israel’s main trading partners, as weighted in the effective nominal exchange rate index, the shekel strengthened by 3.4%, following a long-term trend.
During the quarter, the dollar weakened against major currencies, including the euro (4.6%), the British pound (6.2%), and the Japanese yen (2.5%), following its weakening against these currencies in the previous quarter (Chart 2).
NIS volatility – a decrease in the actual standard deviation in parallel with a slight increase in the implied standard deviation
The standard deviation of the change in the shekel / dollar exchange rate – which represents the actual volatility of the exchange rate – decreased during the fourth quarter of 2020 to an average level of 4.6%, following the decline in the previous quarter (see Figure 3).
The standard deviation inherent in options on the shekel / dollar exchange rate traded “over the counter” – which represents the expected volatility of the exchange rate – rose slightly during the quarter, and its average level was about 6.3%.
The average level of standard deviation inherent in forex options in emerging markets was 10.8% during the quarter. The average level of this standard deviation in developed markets was 7.7% during the quarter, a decrease of 0.5 percentage points compared to the previous quarter (see Chart 4).
 
The activity of the main sectors in the foreign exchange market (1)
An estimate of the activity of the main segments in the foreign exchange market shows that in the last quarter of the year most of the segments continued to operate in accordance with the trend in the third quarter – the institutional entities (pension funds, mutual funds and insurance companies) sold net foreign exchange of $ 5.2 billion; Net sales increased to about $ 6.2 billion. On the other hand, the business sector continued to purchase net foreign currency to about $ 1.8 billion.
(1) The main segments presented do not constitute the entire market – for more information, see “The data system on the activity of the shekel / foreign currency market” in the publication “Statistical Perspective”, 2018
https://www.boi.org.il/he/NewsAndPublications/RegularPublications/Documents/MabatStat2018/shekel.pdf
 
Trading volumes – boards and charts (2)
The average daily trading volume decreased during the quarter by about 14% to a level of about $ 6.8 billion, with most of the decrease due to a decrease in the volume of daily trading in swap transactions.
The relative share of non-residents in the total trading volume (conversion transactions, options transactions and swap transactions) decreased by approximately 2.2 percentage points and stood at approximately 41% at the end of the third quarter.
(2) Trading volumes with the local banking system only. As of 2020, the data do not include branches of foreign banks in Israel.
| Forex transactions with local banks by instruments and sectors (in millions of dollars) | ||||||
| Conversion transactions (1) | Swap transactions1 (SWP) (2) | Swap transactions 2 Cross Currency Swap (3) | Options trades3 (4) | Total Trading Volume (1) + (2) + (3) + (4) | ||
| Fourth quarter 2020 (provisional data) | Total | 129,171 | 293,275 | 1,131 | 20,247 | 443,824 |
| Total (daily average per 65 trading days) | 1,987 | 4,512 | 17 | 311 | 6,828 | |
| Foreign residents | 37,758 | 139,545 | 811 | 5,558 | 183,671 | |
| Thereof: Foreign financial institutions | 37,357 | 139,528 | 811 | 5,522 | 183,218 | |
| citizens of Israel | 91,413 | 153,730 | 320 | 14,689 | 260,153 | |
| Thereof: Real sector | 28,256 | 17,865 | 45 | 6,755 | 52,920 | |
| Financial sector | 22,613 | 62,681 | 180 | 2,630 | 88,104 | |
| Institutional (including insurance companies) | 14,835 | 54,200 | 26 | 2,047 | 71,107 | |
| Individuals | 1,975 | 361 | 0 | 285 | 2,622 | |
| others4 | 400 | 17 | 0 | 35 | 453 | |
| Local banks5 | 9,146 | 16,557 | 70 | 2,278 | 28,050 | |
| Third quarter 2020 | Total | 121,244 | 354,330 | 1,118 | 24,549 | 501,241 |
| Total (daily average per 63 trading days) | 1,925 | 5,624 | 18 | 390 | 7,956 | |
| Foreign residents | 37,644 | 171,466 | 1,040 th most common | 8,070 | 218,219 | |
| Thereof: Foreign financial institutions | 37,248 | 171,457 | 1,040 th most common | 8,070 | 217,814 | |
| citizens of Israel | 83,600 | 182,864 | 78 | 16,480 | 283,022 | |
| Thereof: Real sector | 20,721 | 18,596 | 24 | 5,425 | 44,765 | |
| Financial sector | 22,566 | 96,808 | 0 | 3,635 | 123,009 | |
| Institutional (including insurance companies) | 17,994 | 51,010 | 14 | 2,597 | 71,615 | |
| Individuals | 895 | 402 | 0 | 391 | 1,687 | |
| others4 | 397 | 8 | 0 | 0 | 405 | |
| Local banks5 | 9,623 | 13,688 | 40 | 3,794 | 27,145 | |
| 1 Only one foot of the swap transaction, i.e. the nominal value of the transaction (according to the BIS). | ||||||
| 2The funds exchanged in Cross Currency Swap transactions will be calculated for the purpose of volume only as one leg, in cases where the legs offset each other. | ||||||
| 3 God- National value Total of buying and selling of Call and- Put. | ||||||
| 4 Includes bodies such as portfolio managers, non-profit organizations, national institutions and those not included in the other sections. | ||||||
| 5 Total interbank trading is divided into two. | ||||||
Development of the exchange rate – strengthening of the shekel following the long-term trend
During the quarter, the shekel strengthened against the dollar by about 6.6%, following a long-term trend. At the same time, the shekel strengthened against the euro by about 2%.
Against the currencies of Israel’s main trading partners, as weighted in the effective nominal exchange rate index, the shekel strengthened by 3.4%, following a long-term trend.
During the quarter, the dollar weakened against major currencies, including the euro (4.6%), the British pound (6.2%), and the Japanese yen (2.5%), following its weakening against these currencies in the previous quarter (Chart 2).
NIS volatility – a decrease in the actual standard deviation in parallel with a slight increase in the implied standard deviation
The standard deviation of the change in the shekel / dollar exchange rate – which represents the actual volatility of the exchange rate – decreased during the fourth quarter of 2020 to an average level of 4.6%, following the decline in the previous quarter (see Figure 3).
The standard deviation inherent in options on the shekel / dollar exchange rate traded “over the counter” – which represents the expected volatility of the exchange rate – rose slightly during the quarter, and its average level was about 6.3%.
The average level of standard deviation inherent in forex options in emerging markets was 10.8% during the quarter. The average level of this standard deviation in developed markets was 7.7% during the quarter, a decrease of 0.5 percentage points compared to the previous quarter (see Chart 4).
 
The activity of the main sectors in the foreign exchange market (1)
An estimate of the activity of the main segments in the foreign exchange market shows that in the last quarter of the year most of the segments continued to operate in accordance with the trend in the third quarter – the institutional entities (pension funds, mutual funds and insurance companies) sold net foreign exchange of $ 5.2 billion; Net sales increased to about $ 6.2 billion. On the other hand, the business sector continued to purchase net foreign currency to about $ 1.8 billion.
(1) The main segments presented do not constitute the entire market – for more information, see “The data system on the activity of the shekel / foreign currency market” in the publication “Statistical Perspective”, 2018
https://www.boi.org.il/he/NewsAndPublications/RegularPublications/Documents/MabatStat2018/shekel.pdf
 
Trading volumes – boards and charts (2)
The average daily trading volume decreased during the quarter by about 14% to a level of about $ 6.8 billion, with most of the decrease due to a decrease in the volume of daily trading in swap transactions.
The relative share of non-residents in the total trading volume (conversion transactions, options transactions and swap transactions) decreased by approximately 2.2 percentage points and stood at approximately 41% at the end of the third quarter.
(2) Trading volumes with the local banking system only. As of 2020, the data do not include branches of foreign banks in Israel.
| Forex transactions with local banks by instruments and sectors (in millions of dollars) | ||||||
| Conversion transactions (1) | Swap transactions1 (SWAP) (2) | Swap transactions 2 Cross Currency Swap (3) | Options trades3 (4) | Total Trading Volume (1) + (2) + (3) + (4) | ||
| Fourth quarter 2020 (provisional data) | Total | 129,171 | 293,275 | 1,131 | 20,247 | 443,824 |
| Total (daily average per 65 trading days) | 1,987 | 4,512 | 17 | 311 | 6,828 | |
| Foreign residents | 37,758 | 139,545 | 811 | 5,558 | 183,671 | |
| Thereof: Foreign financial institutions | 37,357 | 139,528 | 811 | 5,522 | 183,218 | |
| citizens of Israel | 91,413 | 153,730 | 320 | 14,689 | 260,153 | |
| Thereof: Real sector | 28,256 | 17,865 | 45 | 6,755 | 52,920 | |
| Financial sector | 22,613 | 62,681 | 180 | 2,630 | 88,104 | |
| Institutional (including insurance companies) | 14,835 | 54,200 | 26 | 2,047 | 71,107 | |
| Individuals | 1,975 | 361 | 0 | 285 | 2,622 | |
| others4 | 400 | 17 | 0 | 35 | 453 | |
| Local banks5 | 9,146 | 16,557 | 70 | 2,278 | 28,050 | |
| Third quarter 2020 | Total | 121,244 | 354,330 | 1,118 | 24,549 | 501,241 |
| Total (daily average per 63 trading days) | 1,925 | 5,624 | 18 | 390 | 7,956 | |
| Foreign residents | 37,644 | 171,466 | 1,040 th most common | 8,070 | 218,219 | |
| Thereof: Foreign financial institutions | 37,248 | 171,457 | 1,040 th most common | 8,070 | 217,814 | |
| citizens of Israel | 83,600 | 182,864 | 78 | 16,480 | 283,022 | |
| Thereof: Real sector | 20,721 | 18,596 | 24 | 5,425 | 44,765 | |
| Financial sector | 22,566 | 96,808 | 0 | 3,635 | 123,009 | |
| Institutional (including insurance companies) | 17,994 | 51,010 | 14 | 2,597 | 71,615 | |
| Individuals | 895 | 402 | 0 | 391 | 1,687 | |
| others4 | 397 | 8 | 0 | 0 | 405 | |
| Local banks5 | 9,623 | 13,688 | 40 | 3,794 | 27,145 | |
| 1 Only one foot of the swap transaction, i.e. the nominal value of the transaction (according to the BIS). | ||||||
| 2The funds exchanged in Cross Currency Swap transactions will be calculated for the purpose of volume only as one leg, in cases where the legs offset each other. | ||||||
| 3 God- National value Total of buying and selling of Call and- Put. | ||||||
| 4 Includes bodies such as portfolio managers, non-profit organizations, national institutions and those not included in the other sections. | ||||||
| 5 Total interbank trading is divided into two. | ||||||