Treasury hedges dollar debt

90% of the government's foreign currency debt is dollar denominated.

The Ministry of Finance Accountant General Division has been hedging Israel's external debt over the last two months, with the aim of reducing exposure to the acute volatility of the shekel-dollar exchange rate. Part of the debt was also hedged against the possibility that the dollar could change direction and strengthen on financial markets overseas.

To reduce exposure to volatility in the exchange rate, currency swap trades were carried out for the first time. Also transacted for the first time were forward trades totaling $700 million, which entailed the purchase of dollars at a guaranteed exchange rate when payment is due.

Finance Ministry officials insisted that the ministry is not gambling on the shekel-dollar rate and that it did not have tools or the ability to predict whether the dollar would continue to fall or change direction and strengthen. Israel's foreign currency-linked debt stood at $31.1 billion at the end of 2007, of which the dollar denominated portion amounted to $28 billion, 90% of the total debt. The government is due to pay $3.7 billion to holders of government bonds by the end of the current financial year.

Published by Globes [online], Israel business news - www.globes-online.com - on April 16, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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