This paper addresses four main questions: firstly, it discusses some theoretical background related to the interest-exchange rate nexus; secondly, it makes an attempt to explain why the interest rate in Brazil is so high, examining briefly the main explanations for it; thirdly, it describes Brazil’s foreign exchange markets, their size and hierarchy; and lastly, it explains the carry trade dynamics considering the institutionalism of the Brazilian foreign exchange market and also the government policies envisioned to curb it.

Ricardo Carneiro, Pedro Rossi

Published in Berlin Working Papers on Money, Finance, Trade and Development, May 2013