Central banks save the daySuitability debateBanks won’t be fooled againEXOTIC DERIVATIVES HAVE had a bad 12 months. They have been branded the evil product behind the global recession, while the banks that created them have paid a heavy price for their use. In Mexico and Brazil some corporates used exotic currency derivatives to bolster their balance sheets. Now the regulators, bankers and corporates are sorting through the damage hoping to develop solutions that will make this a one-off problem.
"Some Brazilian companies were selling what turned out to be naked options on the real," says Arminio Fraga, chairman of the securities, commodities and futures exchange BM&F Bovespa, as well as a former central bank governor of Brazil. "The exporters started selling multiples of their FX revenues – so in effect they were selling puts naked. Why on earth would anyone do that? It’s the equivalent of saying: ‘We’re...
