1) MDT rules in effect since 1992
2) Entrepreneuring subjects may establish foreign exchange accounts
3) Wide range of use of means in foreign exchange accounts
1) Besides the central bank, foreign exchange financial institutions also participate in the inter-bank foreign exchange market (MDT). Their number remained unchanged during the monitored period, i.e. 35 foreign exchange banks were registered as of September 30.
The basic instrument on the MDT is the so called CNB "fixing", introduced in Q3 1992. The foreign exchange fixing rate is announced daily on the basis of movements between the currencies included in the currency basket; this rate may deviate within the range of +- 0.5%. Since May 3, 1993, the currency basket has consisted of the two currencies with the greatest share of the Czech Republic's foreign trade: 65% DEM and 35% USD. Banks can even out their foreign exchange position through the purchase or sale of foreign exchange means at fixing or through mutual trades at the market rate.
In the area of regulating foreign exchange positions, the CNB uses the principle of limiting the short crown position, i.e. the limit of the amount of assets vis-a-vis liabilities. This limit was introduced in Q2 1993 with the aim of restricting speculations by commercial banks and having at its disposal an instrument regulating the foreign exchange position of foreign banks' branch offices.
Most trades on the MDT are carried out mutually between banks. Trades within the framework of foreign exchange fixing thus serve only to even out open foreign exchange positions, whose purpose is to maintain the foreign exchange liquidity of commercial banks. The positive balance of purchases and sales in foreign exchange fixing reflects the inflow of resources from abroad, primarily on the capital account. On the MDT, predominantly spot, forward and swap operations are executed. Lately, option operations have also started to be used.
2) In accordance with the process of extending the Czech crown's convertibility, the foreign exchange offer obligation for foreign exchange residents- juridical entities and entrepreneurs was eased in February. This measure significantly liberalises the possibility for entrepreneurs to establish foreign exchange accounts, but also brings a certain degree of risk. For this reason, banks are beginning to offer various types of new operations to hedge against exchange risk: prompt, time, swap and option operations.
These possibilities provided by this liberalisation were utilised by virtually all types of entrepreneurial subjects without exception. By the end of September enterprise deposits on foreign exchange accounts rose by approximately CZK 3 bn.
3) All foreign exchange means accepted from foreign exchange non-residents with the exception of receipts from exchange office activities, i.e. collections on exports of goods, services, capital receipts, etc. may be transferred to foreign exchange accounts. Foreign exchange means from these accounts can be used for the same purposes from which foreign exchange receipts derive. At the same time, they can be used to finance expenses connected with business trips abroad, to transfer gifts and inheritance and to trade with foreign exchange banks. Under the new rules, account holders may also remit payments due to other foreign exchange residents; however, the recipient will receive the equivalent in crowns of the amount paid in foreign currency.