Foreign And World Currency Markets
The reason for the low standard deviation in the Israeli market is the fact that this market is still subject to control, and that the Bank of Israel's policy in recent years has been extremely consistent, and steered the foreign currency exchange chart market's trading trend in one definite direction. Due to these two factors, speculative involvement in the market was negligible. 98% of trading on foreign currency market currently stems from real activities (importers or exporters), compared to 5%, on world currency markets.
Foreign speculators are still not permitted to operate on the Israeli foreign currency market, while Israeli speculators have been allowed to do so since January, although very few have exploited this privilege. The market, due to its small volume and high stability, apparently does not attract them.
Levy mentions this point as one of the worst faults of the Israeli foreign currency market, since it is usual for speculators to be the heart and soul of this market (as stated above, they represent 95% on world markets), and without them the trading volume on the Israeli market remains low and the market itself relatively backward. "The foreign currency market here needs to keep doubling itself, says Levy and there is no possibility of increases of that size, if we rely solely on Israel's foreign trade.
This is supported by the volume of trade on the foreign currency market, which hovered around $5.5 billion per month during the past three years, showing only minuscule increases. Players that are already involved in the foreign currency market, even though in relatively small volumes, are foreign investors. Levy names: Bankers' Trust, Deutsche Bank J.P. Morgan, Barclays Merrill Lynch, Chase Manhattan, Lehman Bros., Morgan Stanley, and others as banks regularly involved in Israeli foreign currency market trading. They were involved in 2005 too, but in negligible volumes. In 2006, their activities grew to $200 million per month (still a marginal percentage compared to a monthly volume of $5.5 billion), and since the beginning of 2007, their monthly activities have jumped to $500 million. Most of the foreign banks' activities are for their nostro, executed by desks specializing in emerging markets (the same desks that stirred up the storm in South East Asia six months ago). In the past, they operated only in the position of interest rate differences (i.e. long term positions, hardly affecting daily trade), and today their involvement in the market's daily trade is more visible. Another of their activities is in Israeli securities (the selling and buying of which necessitates working through the foreign currency market). The volume of foreigners' activities remains insignificant, yet their presence is felt, and estimates say that their involvement here will grow as the market develops. Levy estimates that whenever the shekel becomes a hard currency, trading will become ore volatile at first. Only in the second stage, following expansion of the market and increase in the number of players will trading stabilize, and the level of volatility possibly decreasing.
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