How to Live with Risk and Volatility

May 1, 2002

A culture of risk management is taking hold in Latin America, particularly in Brazil and Mexico, where the products offered and their use are increasingly like those in developed markets.

Brazil's Central Bank has decided that financial derivatives must play a bigger role in consolidating the country's hard-won but fragile stability. In February, it authorized the use of credit derivatives for the first time, although in a restricted form. In March, the bank began selling currency swaps with floating rate treasury bills - also a first.

Brazil is not the only regional market on the move. In Mexico, the MexDer derivatives exchange, which opened its doors in 1998 but only really got going last year, continues to grow. It won't match last year's performance - growth in the number of contracts traded was 1,000% from a tiny base - but a healthy 25% increase in trades seems well within reach during 2002. Business on Mexico's much bigger over-the-counter (OTC) market is firmly on the up.

In Argentina, of course, the market has virtually ceased to exist. Says Mark Yale, managing director...

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