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

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 in May 2004) 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 a domestic financial markets.