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.
JEL Classification: E42; E58; F31.
Keywords: Exchange rate regime exchange rate floating exchange rate stabilization regulation