Latin American derivatives: Suitability debate

Mexico and Brazil come to terms with meaning of exotic

Central banks save the day

Banks won’t be fooled again

Some Brazilian CFOs have lost their jobs because of Tarns (target redemption notes, or swaps or forwards), notably at Sadia and Aracruz. Now more aptly nicknamed the products from hell, they account for losses across many emerging markets including Brazil, Mexico, Korea, Poland and Indonesia. A fundamental question stands at the heart of the debate about these products: were the firms speculating or hedging with them? And did the banks acting as derivatives dealers intend to meet their clients’ needs or to deceive unsophisticated CFOs with complex asymmetrical products?

The Tarns provided a long position in local currency for corporates.