Brazil: Derivatives Market

Derivatives Compared to Other Assets

Although they are of more recent origin, the markets for interest and exchange rate derivatives represent the bulk of derivative transactions carried out in the country. The success of such contracts has put Brazil among the leading derivatives market in the world. The combination of a solid institutional base able to guarantee reliability for the fulfilment of contracts and, in the recent past, a highly volatile economic environment, especially regarding interest and exchange rates, made such contracts especially attractive to the investing public.

Derivatives connected with commodities are not relevant in terms of volumes negotiated, especially taking into account the share of the agribusiness sector in the total Brazilian GDP (around 40%). This is explained by the model for agricultural policy adopted by the Brazilian Government, in which it acts as the principal financing agent, keeper of regulating stocks and guarantor of minimum prices for the purchase and sale of crops. The predominance of the government in agricultural activities plays a decisive role in reducing, and sometimes even eliminating, the risks inherent in farming and inhibits the emergence of derivative products.