What it means
The new shekel replaced earlier versions of the shekel in the mid-1980s, after a period of very high inflation. It is divided into 100 agorot, in the same way that a dollar is divided into 100 cents.
The Bank of Israel issues the currency and sets monetary policy, including the main interest rate that influences the shekel's value. The exchange rate between the shekel and other currencies is quoted as a pair, such as USD/ILS.
The figure tells you how many shekels one dollar buys. If the number rises, the dollar has become stronger and the shekel weaker.
For a company, the practical issue is foreign exchange risk. An exporter paid in shekels, or an importer paying a supplier in shekels, can see its profit move when the rate changes.
Many firms reduce this risk with forward contracts, which fix a rate today for a payment in the future, or by invoicing in dollars. Israel has a large technology and defence sector, so many foreign investors and venture funds hold shekel-denominated assets or pay Israeli staff in shekels.
Costs for these companies, such as salaries, are paid in shekels even when revenue is in dollars. A stronger shekel therefore raises the dollar cost of running the business.
A note on terminology: the same three letters, ILS, are occasionally used in other settings, such as insurance-linked securities, so the context should always make clear which one is meant. In currency quotes, ILS refers to the shekel.
The Bank of Israel publishes a representative daily rate, which companies often use for accounting and tax reporting. Treasury teams should check which rate their contracts and accounting policies require, since using the wrong source can create small but annoying differences in the books.
In practice
Real-world examples.
Example
A software company based in Tel Aviv pays its engineers in shekels but sells subscriptions in dollars. When the shekel strengthens, its payroll costs rise in dollar terms. The CFO buys forward contracts to lock in a rate for the next six months.
Example
A European retailer buys goods from an Israeli manufacturer and agrees to pay in shekels. The treasury team opens a small shekel balance so that it can pay invoices without converting on the day. It reviews the balance each month to limit exposure and tops it up only when a large invoice is due.
Example
An investor in a global equity fund notices that part of its return came from changes in the shekel. When the shekel rose against the dollar, the holding gained extra value on top of the share price rise. In a year when it fell, the same effect would have reduced the return.
Formula
Calculation
Amount in ILS = Amount in USD x USD/ILS exchange rate
Suppose, for illustration, the rate is 3.60 shekels per dollar. A company that needs to pay an Israeli supplier $50,000 would be paying 50,000 x 3.60 = 180,000 ILS.
If the shekel strengthens to 3.40 per dollar, the same 180,000 ILS costs 180,000 / 3.40 = $52,941 to buy, which is $2,941 more than before. If instead the shekel weakens to 3.80 per dollar, the cost falls to 180,000 / 3.80 = $47,368. The rates here are illustrative only, since real rates change constantly.Case study
Seen in the real world.
Negev Cloud Systems is a fictional software firm with 200 staff in Israel and customers in the United States. Its payroll is 4,000,000 ILS a month, and almost all revenue is in dollars.
At an illustrative rate of 3.60 shekels per dollar, payroll costs the company 4,000,000 / 3.60 = $1,111,111 a month. If the shekel strengthened to 3.20, the same payroll would cost 4,000,000 / 3.20 = $1,250,000, an extra $138,889 a month.
In this illustrative case the finance director decided to hedge about 70% of expected shekel costs with forward contracts. The hedge cost a small fee, but it made the budget far more predictable. The remaining 30% was left unhedged so that the company could benefit if the shekel weakened.
Watch out
Common mistakes.
- Reading the exchange rate quote the wrong way round, so that a stronger shekel is mistaken for a weaker one.
- Budgeting shekel costs at one fixed rate for the whole year without allowing for movement or building a reserve for a stronger shekel.
- Assuming ILS always means the currency, when in some contexts it can refer to insurance-linked securities.
Questions
People also ask.
What is the currency symbol for ILS?
The shekel has its own local sign, but in international finance people use the code ILS to avoid confusion.
How many agorot are in a shekel?
There are 100 agorot in one shekel.
How do companies manage shekel risk?
They use forward contracts, options, natural hedges such as matching shekel costs with shekel revenue, or invoice in a more stable currency, and the best mix depends on cost, size and how predictable cash flows are.
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