Derivatives in the Czech Republic and abroad at present and in perspective

In the early '90s the Czech market was limited mainly to the simplest foreign exchange OTC instruments - foreign exchange forwards (outright FX forwards) and swaps (currency swaps without interest rate payments). As the liquidity in such instruments was at a high level, for banks and clients it was very easy to enter such a market. In 1995 Czech banks and branches of foreign banks started to quote some more sophisticated derivatives - foreign exchange options - and in 1996 a new period of derivatives started when banks began trading interest rate swaps and forward rate agreements (FRAs). As yet there is no futures and options exchange in the Czech Republic. The Czech National Bank places great emphasis on the accounting of derivatives. Its banking supervision department has issued instructions on how to include FX off-balance-sheet derivatives in foreign exchange positions where notional or delta values are recorded. The goal behind the CNB's accountancy standards is to have a very clear idea about the notional amounts of derivatives in the Czech banking sector. Derivatives are divided according to risk category and instrument. Commercial banks must provide the CNB with a monthly detailed survey of off-balance-sheet activities; however, their FX positions must be reported on a daily basis.