The Influence of the Development of Reference Interest Rates in Choosing Investment and Debt Financial Tools for Corporations - Case of the Czech Republic In 1997-2002

Journal of Emerging Markets, Vol. 12, No. 2, Summer 2007

35 Pages Posted: 12 Sep 2009

See all articles by Petr Polak

Petr Polak

University of Brunei Darussalam

Date Written: September 12, 2009

Abstract

This paper focuses on the development of reference interest rates in the Czech Republic after the currency crisis of May 1997 and covers the period to the years 2002/2003 (that is to the time just before the country’s entry into the European Union) when the currency exchange of the Czech koruna (CZK) and interest rates were stabilised. The relatively high volatility of Czech reference interest rates in the late 1990’s influenced the development of company debt financing, forcing companies to become more sophisticated and dynamic in their use of debt instruments and hedging tools as they attempt to manage the subsequent interest rate risk. In this paper, the situation in three model corporations is also described - the first, a solvent company with a foreign owner (Moravian-Silesian Heating Company - MSHC, renamed to Dalkia Morava in 2002), the second, a solvent company with the Czech state as its majority owner (North Moravian Power Company - NMPC), and the third with domestic capital, which had economic problems during the given period (Vítkovice, a.s.), plus a big insurance company as a specific and very important institutional investor in domestic financial markets.

Keywords: Reference interest rates, interest rates hedging tools, bonds, commercial papers, yield from financial operations, cost of external financing, Czech Republic, Central Eastern Europe

JEL Classification: N240

Suggested Citation

Polak, Petr, The Influence of the Development of Reference Interest Rates in Choosing Investment and Debt Financial Tools for Corporations - Case of the Czech Republic In 1997-2002 (September 12, 2009). Journal of Emerging Markets, Vol. 12, No. 2, Summer 2007, Available at SSRN: https://ssrn.com/abstract=1471898

Petr Polak (Contact Author)

University of Brunei Darussalam ( email )

Jalan Tungku Link
Gadong
Bandar Seri Begawan, BE1410
Brunei

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
59
Abstract Views
708
rank
457,077
PlumX Metrics