Rapid devaluation of the shekel over the last two weeks led to unusual demand for the dollar. The demands come in mostly through the foreign currency funds, which having been through a long dry spell, raised NIS 2.5 billion in two weeks.

The managers of the major funds are revealing most of the exposure to the dollar, about 50% to 80% of it, is investments in the dollar linked, government bonds named Gilbo'a. Gilbo'a bonds are dollar-linked, giving the investor the benefits of the devaluation. However, the rush of increased demand hiked the prices of these bonds and lowered the annual yields to a mere 1%.

Such a low yield makes these appear bonds expensive, other instruments for dollar investment may appear more attractive. A three-year US Treasury bond, for example, generates redeemable yield of 3.5%, and a longer-term, ten-year T-bill yields 5%.

Other possible instruments are dollar options traded on the Tel Aviv Stock Exchange. Some funds are in fact taking that route. Another option is dollar based deposits, a lesser alternative, since it yields next to zero interest.

TheStreet Recommends

Shay Barak, CEO of Ilanot Discount opines that "what interests the public is a link to foreign currencies and not the redeemable yield on the Gilbo'a bonds, which the investor has to outlive in order to reap the benefit." He says the traditional customer buys foreign currency when the dollar is on the rise, and it is clear that when the devaluation is halted, 20% of the monies directed toward foreign currency funds will be reverted to alternative investment routes.