Living with a Floating Exchange Rate

ABSTRACT Since the implementation of a floating exchange system by the Brazilian economic authorities in mid-1999, the trajectory of the real exchange rate has been characterized by extreme volatility, inherent in such a system. The Brazilian financial market, however, has the advantage to possess a reasonably liquid derivative market which can contribute to a less turbulent ‘relationship’ with a floating exchange regime. Nevertheless, any possible benefits from this market to the Brazilian economy would require: the routine use of financial derivatives by economic agents in their business management, the elimination of any restriction to access to derivative markets by foreign investors, and the improvement of supervisory and regulatory mechanisms.