What is US currency worth compared to what they use in israel?

Answer 1

Well.. I'm not too smart but ,

From the beginning of the year until the end of December, the sheqel (New Israeli Sheqel-NIS)

strengthened against the currency basket by 3.2 percent, and against the dollar by 0.2 percent.

The difference reflects the strengthening of the dollar against most other currencies in world

markets. Following the fluctuations and significant rise of the exchange rate in the last few

months of 1998 which took place against the background of the international financial crisis,

the foreign exchange market was relatively calm in 1999. In the first few months of the year

there was a trend of nominal appreciation of the NIS against the currency basket, with a

contraction of the distance from the lower limit of the exchange-rate band from 14 percent to

7.2 percent2. In the last few months of the year the sheqel depreciated against the currency

basket, to a level close to that at the beginning of the year (see Diagrams 1 and2). The band

widened from 31.8 percent at the beginning of the year to 35.5 percent at the end, the result of

the slopes of the upper and lower limits remaining the same as in 1998-6 percent and 2

percent respectively3.

In the first quarter of 1999, the NIS appreciated by 5.5 percent against the currency basket

despite the uncertainty caused by the announcement, at the end of 1998, of early elections for

the Knesset (Israel's parliament) and for Prime Minister. Even the crisis in Brazil in January

1999 did not cause pressure in the domestic foreign currency market. The renewed

strengthening of the NIS may be explained inter alia by the high differential between the

interest rate in Israel and those in other economies, and by expectations of relatively low

differences between their inflation rates. It can also be explained by the calm in foreign

currency and capital markets in emerging economies, which was maintained despite Brazil's

currency crisis, and by buoyant stock markets throughout the world, which gave rise to a

feeling of stability and attracted back to the domestic market foreign investors who had

reduced their activity as the global financial crisis worsened in August-October 1998. The

strength of the sheqel may also be due to a correction of the market's over-reaction to that

crisis. Against this background, and in the light of the reduction in inflation expectations to 5.5

percent in February and March, the Bank of Israel cut the rate of interest on its monetary loans

by 0.5 percentage points towards the end of February, and by another 0.5 percentage points at

the end of March. At the end of the first quarter, the rate of interest was still 3 percentage

points higher than in the last quarter of 1998, when the Bank raised interest by 4 percentage

points and thus prevented the steep rise in inflation expectations in that quarter from translating

into a rise in inflation.

From the second half of April till the middle of May, the NIS weakened against the currency

basket. This reversal was due to several factors, including greater political uncertainty due to

the approaching election on May 17. In the last week of April, foreign-currency-indexed

options traded on the stock exchange expired, a day after the Bank of Israel announced a

further reduction of half a percentage point in the rate of interest. As a result of the importance

attached to the price at which options are exercised (the representative exchange rate on the

date they expire), exchange-rate volatility can rise as the expiry date gets closer. Unlike other

occasions when options expired and the exchange rate remained stable, in this instance there

was depreciation during the morning of the expiry date, April 27.

Other factors which boosted demand for foreign currency in this period were the narrowing

of the differentials between the rate of interest in Israel and abroad (see Diagram3), and the

sale of some $ 90 million of bank shares to foreign investors. As the shares were a sheqel asset,

their purchase placed the investors in a position of currency exposure to the sheqel. To protect

themselves against this exposure, they bought dollars with NIS in forward transactions,

creating demand for foreign currency in the market. However, since payment was made in

foreign currency directly to the government, no counterweighing supply of foreign currency

appeared on the market.

From mid-May until mid-July, before the new government's economic policy had been

formulated, the NIS/dollar exchange rate remained stable. During this time the dollar

strengthened against the euro, reflected in the stronger trend of the NIS against the currency

basket; although this trend reversed in the run-up to the election, it strengthened again

thereafter, and the nominal exchange rate peaked on July 19, when the NIS was traded at a rate

7.2 percent above the lower limit of the band.

From the middle of July till the middle of October there was strong demand for foreign

currency, some of which was due to the uncertainty prevailing before the budget guidelines had

been determined, as well as falling prices in the capital markets of industrialized countries.

These declines were the result of expectations of monetary tightening in the US, expectations

which were realized, and of growing worldwide concern at the effects of the transition to the

year 2000. These considerations led various companies to bring forward their new financing,

and made investors switch to the most secure and liquid assets (this occurred mainly in the

months May-August). The rise in the rate of interest abroad on the one hand, and the lowering

of interest by the Bank of Israel (by 0.5 percentage points at the end of August) on the other,

narrowed the differential between domestic and foreign interest rates, which also contributed to

the strengthening of demand for foreign currency. The nominal exchange rate reached its

highest level of the year in the second half of October when the NIS was traded at between

12.2 percent and 13.7 percent above the band's lower limit.

Despite a cumulative rise of 6 percent in the average currency-basket exchange rate in

August and September, inflation expectations responded with a rise of only 1 percentage point,

from 4.8 percent in July to 5.8 percent in September. In contrast, depreciation by a similar

amount (6.7 percent) in August-September 1998 led to a 3.1 percentage point rise in inflation

expectations. This may indicate that the relation between exchange-rate fluctuations and

inflation expectations has become weaker than it was in the past, although there is still a clear

link between them. The loosening of the link between inflation and the exchange rate in a

floating-exchange-rate regime is a function of the central bank's commitment to achieving the

inflation target and the extent to which the public believe that the Bank will succeed in fulfilling

this commitment. In such a situation, a rise in the exchange rate beyond a rate consistent with

the inflation target will cause the public to sell foreign currency, in the knowledge that the

central bank will act-by raising the rate of interest-to achieve the inflation target. Sales of

foreign currency will lower the exchange rate, making a rise in the interest rate unnecessary.

From the second half of October until the end of December the trend of the currency-basket

exchange rate reversed, with the NIS appreciating by 4.4 percent in that period. This

development was affected by the buoyant trend in stock markets world wide, and specially in

the US, and the lessening of concern regarding the transition to the new millennium. Other

factors directly associated with Israel's economy also helped the strengthening of the NIS,

including the resumption of peace negotiations with Syria and improvements in Israel's credit

rating. The calm in the foreign currency market continued despite several events that could

have caused concern, such as the announcement in mid-November of the impending resignation

of the Governor of the Bank of Israel. Evidently the public expects the anti-inflation policy to

continue, in the light of the Prime Minister's declaration that the policy pursued by the Bank of

Israel in the last few years would be maintained. This assessment by the public encouraged

investment in the NIS. The confidence which the public has in the anti-inflation policy was also

reflected by the continued downward trend in inflation expectations and actual inflation in this

period. Against this background, and in the light of the calmer international financial situation,

the Bank of Israel reduced the interest rate further-by 0.3 percentage points at the end of

November, and by 0.5 percentage points at the end of December. The calm continued into the

new year as the fears regarding the millennium bug dissipated, and with the announcement of

the intention to appoint David Klein as the new Governor of the Bank.

Answer 2

What they use in Israel is called a shekel, and a dollar is worth 3.45 shekels as of now.