The possible benefits of holding Brazilian short-terminstruments or Brazilian reais may have been overlooked bytreasurers as a result of the perceived contagion risk at the macrolevel over the past eight months.

During the bout of concern over Europe's debt problems inmid-September, the real weakened to U.S. $1.95 from U.S. $1.54 inlate July. The latest reading at U.S. $1.72 shows considerablepotential for the real to appreciate against the greenback overcoming months. In addition to the impetus favoring all risky assets(the tide lifting all boats), the Brazilian real has the wind inits sails as the result of other fundamentals.

First, Brazil's president, Dilma Rousseff, is demonstratingsteady resolve to continue the policies and priorities of hersuccessful predecessor, Lula da Silva. These efforts continue toattract institutional funds, particularly to Brazilian equities andinfrastructure-related bonds, which also benefited as of Decemberfrom the elimination of the tax on financial transactions (IOF tax)due from foreigners.