Dealers in Brazil's foreign exchange markets were caught between a rock and a hard place in September. The rock: Brazilian authorities’ determination to arrest the appreciation of the real, which had been driven steadily higher by carry-trade investors drawn to Brazil’s double-digit interest rates. The hard place: a mammoth hedging programme designed to protect one European bank’s Brazilian operations from a slide in the real.
The hedging activity accounts for anywhere from 50% to 70% of the tur
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