Swaps as a tool for hedging currency and interest rate risk in the Republic of Srpska
Swaps as a tool for hedging currency and interest rate risk in the Republic of Srpska

Summary/Abstract: The development of modern banking is characterized by processes of deregulation, increased competition, globalization and application of information technologies. These processes have impacted the reduction of the role of banks’ traditional credit – deposit operations and their orientation towards other types of business activities, such as the development of innovative derivative financial instruments. However, the situation in the Republic of Srpska is somewhat different. The bank-centric financial system and dominance of traditional banking services indicate a lack of interest in financial innovation. On the other hand, the high-risk environment in which domestic banks and their clients operate creates preconditions for successful use of financial derivatives, such as swap transactions.This paper analyses the current situation and the possibility of development of swap transactions in the Republic of Srpska in order to protect investors from interest rate and currency risk. Survey results show that swap transactions have some perspective in the Republic of Srpska. Banks, as financial supermarkets, as well as their clients, especially those which are internationally oriented and thus more exposed to business risks, have an interest in concluding swap transactions in order to reduce risk and/or make a profit.

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