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Forex in Small Economy

Forex in Small Economy

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09/27/2012

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Bank of Israel
 Foreign Exchange Activity Department
 
The Foreign Exchange Discussion Paper Series
The Foreign Exchange Options Marketsin a Small Open Economy
Menachem Brenner 
Ben Z.Schreiber 
∗∗
No. 3/06, November 2006
* Stern School of Business,New York Universitymbrenner@stern.nyu.edu*** Foreign Exchange Activity Department, Bank of Israel and Bar-Ilan University
 
schreibe@boi.gov.il
We would like to thank David Afriat for technical assistance,Dror Shalit for providing the data from Tel
 Aviv Stock Exchange and Roi Stein and Rafi Eldor for helpful comments.
The views expressed in this article do not necessarily reflect those of the Bank of Israel.Those wishing to quote from this article may do so provided that the source is credited.To download a .pdf version of this article, visit http://www.bankisrael.gov.il
 
ריצקת
 
טמה
 
קוש
"
חותפו
 
ןטק
 
קשמב
 
ח
,
לארשי
 
ומכ
,
רואל
 
תוילקסיפהו
 
תוירטנומה
 
תוטלחהה
 
לע
 
תיתוהמ
 
עיפשמםיימוקמה
 
הלכלכהו
 
םייסנניפה
 
םיקוושה
 
לע
 
ויתועפשה
.
היצמרופניאה
 
תאו
 
תוליעיה
 
תא
 
תנחוב
 
וז
 
הדובעלקש
 
תויצפוא
 
יקוש
 
תשולשמ
 
רוזגל
 
ןתינש
\
הפוקתב
 
לארשיב
 
ולעפש
 
רלוד
10/2001 – 12/2004.
שולשורחסנ
 
םהב
 
םיקוושה
 
תלקש
 
תויצפוא
\
רלודםגדמה
 
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לארשי
 
קנב
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ביבא
 
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הסרובה
, 
קפלדל
 
רבעמ
 
קושהו
)OTC(,
םינייפאמ
 
ילעב
 
םנהםינושתוליזנ
 
יחנומב
 ,
עדימה
 
תופיקש
,
םינקחשה
 
יפואעפהיםהב
 
םילםירישכמה
 
ןווגמו
 
םהב
 
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.
וז
 
תואיצמ
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ותוא
 
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םיקווש
 
הזמ
 
הז
 
םינוש
 
םינייפאמ
,
תוליעיה
 
תא
 
ןוחבל
 
תרשפאמ
 
איהו
 
רתויב
 
תידוחיי
 
הנהקוש
 
לכ
 
לש
 
תילועפתה
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רעש
 
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תידיתעה
 
תויתדונתה
 
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קיפהל
 
ןתינש
 
תויזחתה
 
ביט
 
תאלקש
 
ןיפילחה
\
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ןיב
 
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תאםינושה
 
םיקוושה
,
םהיתועפשה
 
תאו
 
הלא
 
לכ
 
לשתויצפואה
 
יריחמ
 
לע
. 
יכ
 
אצמנתויצפוא
 
רובעתומודםיקוושה
 
תשולשב
 
תורחסנה
 
םגדמה
 
תפוקתב
 
התייה
 
אליחוורל
 
תורשפא
 
זארטיברא
')
ןוכיס
 
אלל
 
חוור
(.
תאז
,
דדמנש
 
יפכ
 
םתוליזנב
 
טרפבו
 
םיקוושה
 
ינייפאמב
 
םילדבהה
 
תורמלהינק
 
יחוורמב
 
לשמל
-
הריכמ
) bid-ask spreads(
דוגינבולש
 
םיעשתה
 
תונשמ
 
םימדוק
 
םיאצממלהאמהתמדוקה
. 
רעש
 
לש
 
תידיתעה
 
תויתדונתה
 
לש
 
רתויב
 
הבוטה
 
תיזחתהש
 
אצמנ
 
דועלקשה
\
רלודהקפוהמתויצפוא לקש
\
רלודידי
 
לע
 
וקפנוהשתויצפוא
 
לשו
 
לארשי
 
קנבןהש
"
ףסכב
 
תילכלכ
) "At-The-Money-Forward(
קפלדל
 
רבעמ
 
קושב
 
תורחסנה
)OTC.(
 
 
 - 2 -
The Foreign Exchange Options Market
s
 in a Small Open Economy
Abstract
The foreign currency market in a small open economy, like Israel, plays a major role infiscal and monetary policy decisions, through its effects on the financial markets and thereal economy. In this paper we explore the efficiency of three related foreign exchangeoptions markets and the information content of the instruments traded in these markets.The unique data set on OTC trading and the central bank auctions, in addition to theexchange traded options provide us with insights about the operation of these markets,their relative efficiency, their information content and their interrelationship. Animportant aspect is the effect of liquidity and spreads on the pricing of these options inthese markets.JEL Classification: F31, G13, G14Keywords: Foreign Exchange, Implied Volatility, Liquidity, Bid-Ask Spread

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