1. Derivatives in Brazil

2. Aug/02 Derivatives in Brazil Uses of Derivatives in Brazil  Who uses, Why and How  Limiting factors on using derivatives in Brazil

3. Aug/02 Derivatives in Brazil Who uses, Why and How BANKS: Why: Hedging or taking risks. Arbitrage. Hedging for customers. Securities design. How: Futures and Options. Swaps and NDF’s. Interests and FX (US$). Price index. Commodities Stocks

4. Aug/02 Derivatives in Brazil Who uses, Why and How Companies: Why: Hedging debts. Hedging cash-flow. Raw Material. Product prices Taking risks. How: Swaps and NDF’s. Futures and Options. FX and Local Interests. Price index. Libor Commodities

5. Aug/02 Derivatives in Brazil Who uses, Why and How Government: Why: Debts Management.. NTN x (LFT + Swap) Lowering bond interests.. Put option embedded Hedging the market. How: Swaps (at BMF). Options. FX and Local Interests. Bonds

6. Aug/02 Derivatives in Brazil Who uses, Why and How Individuals: Why: Investments. Taking risks. How: Through Mutual Funds. Swaps and Options (bundled with securities). FX and Local Interests. Stocks

7. Aug/02 Derivatives in Brazil Limiting Factors on Using Derivatives Tax Imbalance: PIS/COFINS: (Social Contribution) Income Tax: IOF: (Tax on Financial Deals) 3,65% over profits on derivatives (monthly); Losses on hedged subject not deductible. Profits on derivatives do not net with losses on hedged position (for companies). Tax recoverable at monthly or quarterly report. Affects put options traded at BMF. Strategies with options are virtually out of the market.

8. Aug/02 Derivatives in Brazil Limiting Factors on Using Derivatives Legal / Regulatory Issues: No standardized contract (OTC) Structured Solutions Too many different contracts to manage Fear of `hidden risks` on the contracts used by the banks. Legal restrictions on contracts for structured solutions without showing the components of the structure. Structure becomes public with the “explicit “ contracts.

9. Aug/02 Derivatives in Brazil Limiting Factors on Using Derivatives Instruments (lack of): Exotic Options Deliverables Credit derivatives There’s no standard contract or clearing to register and settle the transaction Restrictions on derivatives with delivery on the FX market (FX regulation). Regulation is to be launched.

10. Aug/02 Derivatives in Brazil Limiting Factors on Using Derivatives Other: Credit Risk Culture Netting regulation may help. New BPS and the Clearings (BMF, CBLC) High interest rates and inflation boosted the imbalances. Market was highly regulated.

11. Aug/02 Derivatives in Brazil Further Questions Sales Desk: 5511 3247-3368 Email: marcelo.maziero@itau.com.br Thank You. Marcelo Maziero