Who is the one really setting the trends and rates in Israel's shekel-dollar market? Once upon a time, it was local players, led by the big banks and a few heavyweight corporations, augmented by speculators. Bank Hapoalim, which runs the biggest dealing room in Israel volume-wise, often stood out by virtue of its aggression and habit of bucking the trend, and many were the days that it affected exchange rates. On other days it was the Israel Electric Corporation, or some hi-tech giant converting monies raised abroad that pressed down the dollar rate.

In recent years the market segment, and effect, of foreign investors stepped up. Big foreign banks, such as Citibank or Chase Manhattan, started buying and selling dollars in Israel for customers and for themselves, and they were the ones that set the trend. When operating for themselves, they speculated on the short-term, which is what they usually do in currency markets.

But in the last year, the variety of foreign investors playing the local market increased. The commercial banks found themselves rubbing shoulders with foreign mutuals, portfolio management firms, pension funds, institutions usually identified as investment banks, and international hedge funds.

Hedge funds usually get the seat of honor in the currency market, as they are essentially, mutual funds unbound by predefined investment policies. They are also not afraid to take on major credit. It was over a decade ago that Quantum, the hedge fund run by the legendary George Soros, managed to "break" Britain's central bank, forcing it to change its exchange rate policy.

Hedge funds were also blamed for the financial debacle that swept through Asia in the mid-1990s. They were accused of accelerating the devaluation of Asias currencies. Malaysia's prime minister, Mahathir Mohamad, bitterly charged Soros and the "speculators" with causing the crisis that ravaged his country.

Six years later, Israel's finance minister, Silvan Shalom, repeated the accusation, placing the blame for the shekel's erosion on the shoulders of "foreign speculators".

The thunderous collapse of Nobel-prize-winner studded Long Term Capital Management sent shock waves throughout the hedge fund industry. But in the aftermath of the hi-tech collapse, hedge funds are staging a comeback and are starting to throw their weight around the financial markets again.

Are they operating in Israel's shekel-dollar market? Yes.

It transpires that some of the world's biggest hedge funds, including Quantum and Caxton, are a key factor in the local arena. Their investment in a coin is purely speculative. Their aim is to build up a position, quietly and carefully, without being identified; wait a few months; then sell at a profit, after the price has gone up.

Traditionally, that secrecy has been central to their modus operandi, for fear that piggy-backing speculators will ruin the whole move. Banks or brokers suspected of leaking details of their operations risk a swift kick on the butt, and the loss of a major client.

That is how the hedge funds managed to operate here so secretively, without attracting attention. On any given day, orders of $50 million or $100 million can influence trade. Yet unlike in the past, they are not trying to bend the market or force a trend change. That, apparently, can no longer be done by a solo player, for a simple reason: the market has become liquid, wide, and diversified, from the perspective of the types of players even after trading volumes sank from more than a billion dollars a day, in the second quarter, to $500 million these days.

And if the market has learned anything in the last half-year, it's that the foreign players may move the market on dull days, but the major swings are actually the fault of another community altogether the Israeli public.

Households, small companies and private investors, inflicted with a bad case of herd mentality, are the ones lifting the dollar to NIS 5 a pop, and are also the ones who brought it down at the same breakneck speed.

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