Foreign currency trading was especially volatile on Friday, driven by maneuvering between a foreign hedge fund and foreign bank, due to an option structured by the hedge fund.
A senior market source told "Globes" that a foreign hedge fund had a "double-no-touch" option which was expiring. The option was structured so that if the shekel-dollar exchange rate hit NIS 3.9/$ or higher, or alternatively hit NIS 3.75/$ or lower, within a month, the hedge fund would lose money. If the shekel-dollar rate stayed within those boundaries, the hedge fund would profit.
On Friday, the hedge fund lost.
The shekel-dollar exchange rate neared NIS 3.78/$ on Friday, but the Bank of Israel did not intervene, as it has numerous times in the past when the rate neared that level, and the rate continued to drop.
A senior market trader told "Globes", "Deutsche Bank sold many dollars Friday. It is active on a regular basis, but on Friday was especially active." It may very well be that the hedge fund had bought the option from Deutsche Bank, so that the bank was selling dollars in order not to lose its money. However, market sources also said that other foreign banks, such as Morgan Stanley, sold dollars on Friday, so that it is difficult to know who had sold the option.
Selling dollars for shekels weakens the dollar, and strengthens the shekel against the dollar, which is signified by a lower shekel-dollar exchange rate.
During Friday's trading, the exchange rate hit NIS 3.75/$, and the hedge fund lost, according to estimates, at least $2 million. The source told "Globes", "That's not a large sum in terms of hedge funds".
The low point for the shekel-dollar rate on Friday was NIS 3.735.
On Friday, the Bank of Israel set the shekel-dollar representative exchange rate at NIS 3.762/$, 0.896% lower than the day before, and set the shekel-euro representative exchange rate at NIS 5.3688/€, 1.109% lower than the day before.
Published by Globes [online], Israel business news - www.globes-online.com - on September 6, 2009
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