The ongoing war has thrust Israeli businesses into uncharted financial waters, with the shekel’s exchange rate experiencing unprecedented volatility. 

Over the years, I’ve observed firsthand how geopolitical tensions have become the primary driver of exchange rates, overshadowing traditional macroeconomic factors and shattering established patterns of behavior of the shekel.

Since the outbreak of hostilities on October 7, we’ve witnessed the USD/ILS exchange rate fluctuate dramatically between 4.08 and 3.55, with implied volatility reaching a 20-year high, rivaling levels seen during the peak of the COVID-19 crisis. 

This volatility has created a complex landscape for Israeli businesses engaged in international trade, presenting both challenges and opportunities.

Exporters: Riding the wave of a weaker shekel

Israeli exporters have found a silver lining in the relative weakness of the shekel. 

Those who implemented methodical hedging strategies have successfully locked in favorable exchange rates, potentially boosting their revenues in shekel terms for the coming months. 

Our data at okoora indicates a significant increase in hedging activity among exporters during the fourth quarter of 2023 compared to the previous year, suggesting a proactive approach to financial risk management.

Importers: navigating turbulent waters

Conversely, Israeli importers have faced a more challenging environment. 

Beyond grappling with supply-chain disruptions, they’ve been hit with a double blow of a weaker shekel and reduced consumer spending. 

While businesses that hedged their currency exposure before October 7 managed to mitigate some damage, others have been forced to either raise prices or accept lower profit margins.

Interestingly, our observations at okoora show that importers initially reduced their hedging activity drastically in the immediate aftermath of the war’s outbreak. However, as the conflict progressed and the shekel began to strengthen, we’ve seen a gradual increase in hedging activity, though still below historical norms.

Structured hedging in volatile times

As we navigate these turbulent financial waters, it’s clear that the heightened exchange rate volatility demands a methodical approach to hedging for all businesses engaged in international trade. 

The ability to navigate between peaks and troughs of exchange-rate trends to secure favorable rates has become more crucial than ever.

The war has reshaped the financial landscape for Israeli businesses, breaking known patterns and introducing new complexities. Yet, it has also underscored the importance of proactive financial management and the value of tools that enable businesses to hedge effectively against currency risks.

As we look to the future, Israeli businesses must remain agile, leveraging financial technology and expert insights to navigate the ongoing volatility. 

By adopting a strategic approach to currency management, companies can not only mitigate risks but also position themselves to capitalize on opportunities as they arise.

In these challenging times, the resilience and adaptability of Israeli businesses are being put to the test. However, with the right strategies and tools at their disposal, I’m confident that our business community will not only weather this storm but emerge stronger and more financially savvy than ever before.

Benjamin Avraham is the CEO and founder of the fintech startup okoora.