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DERIVATIVE INSTRUMENTS: A WAY OF PUBLIC DEBT FINANCING?
Abstract
A significant degree of uncertainty in the consistent of the fiscal development within EU countries has prompted governments to stop or decrease unfavourable developments and to look for solutions to ensure sufficient debt financing. In the context of debt financing, which is one of the major ways of financing the fiscal imbalance, are countries, as reported by OECD surveys, besides traditional debt instruments focusing also on the use of specific financial instruments - derivatives. The aim of the paper is to analyse the use of derivative instruments, namely interest rate and currency swaps, in the field of public debt management. Their purpose is to secure the countries’ financing ensuring the lowest possible costs by an acceptable degree of risk. The paper also points out the advantages and disadvantages that emerge from their use in the context of debt financing. The purpose of the paper is to use model examples and verify whether the use of derivative contracts in different situations would be a suitable instrument for the public sector, for the debt manager, to finance long-term fiscal imbalances.
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