Interest Rate Derivatives as a Tool of Efficient Hedging - Empirical Anaylsis for Poland
The development of the financial market in Poland commenced with the beginning of the transition of the country's social-economic system in 1989. Due to the fact that there had been no financial market with demand and supply for financial instruments (products) in the Polish economy before 1989, such a market had to be constructed from the very scratch. This meant creation of typical financial markets institutions (such as stock exchange) and as well as instruments, including quite wide range of derivatives. The first segment of financial market in Poland, developing quickly at the beginning of the 1990s, was interbank deposit market which facilitated management of Polish banks' liquidity. At the same time, treasury bills market providing financing for budget deficits and foreign exchange market (currency market) started to grow. On 16th April 1991, Giełda Papierów Wartościowych w Warszawie (Warsaw Stock Exchange) begun its operation mainly due to ongoing privatization of state-owned companies. Continuous liberalization of foreign exchange regime at the beginning of the 1990s triggered development of foreign exchange derivative market. By the mid-1990s, Polish financial market was already a well- developed market characterized by high liquidity and high turnover, with two basic segments - stock market and fixed interest rate bonds market - which are typical for financial market in any developed economy. Gradually, other segments of financial market also started to appear in Poland. Further liberalization of foreign exchange market allowed launching of foreign currency swap market which in turn facilitated swift development of bank derivative market for Forward Rate Agreement contracts (FRA). And continuing integration of Polish economy with European markets and its internationalization let Polish investors to participate in international foreign exchange markets through use of another bank derivative - Interest Rate Swap contracts (IRS)1. Regards public market in Poland, derivative instruments trade was launched at the Warsaw Stock Exchange on 16th January 1998 when futures for WIG-20 index were introduced2. Nowadays, derivatives are common for all segments of the financial market in Poland: interbank market, money market, foreign exchange market, as well as capital market, where advanced financial engineering is employed. (fragment of text)
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