MOVING FROM UNCERTAINTY TO PREDICTABILITY - INTEREST RATE RISK MANAGEMENT STRATEGIES
Author: Kalina Yankova (University of National and World Economy)
Keywords: interest rate, interest rate risk, hedging, interest rate swap, interest rate option
Economic and political turbulence in 2022 and 2023 led to serious changes in the business environment in Bulgaria. Increasing of the main interest rates by the European Central Bank turned out to be a huge challenge. It reflected both: loans already used and the economic assessment of future investment projects. The long period of zero and negative interest rates led to diminishing of the importance of that factor for making investment decisions and developing long-term company growth strategies. The new higher levels of the main interest rates are expected to remain a persistent trend and business will need to adapt to the new environment. An effective, reasonable, sustainable and modern approach is to use instruments to hedge the interest rate risk. The purpose of this article is to present the main instruments that are offered in Bulgaria for hedging the interest rate risk. Also, it explains the way they are constructed, their nature and way of functioning.
