Brazil, have experienced devaluation of their currency at various times. In 2002, the Brazilian exchange rate fluctuated from a low of R$2.2709 per US$1.00 to a high of R$3.9552 per US$1.00. On June 6, 2005, the rate was R$2,4576 per US$1.00. The real depreciated against the U.S. dollar approximately 2.3% in 2002, due in part to the continued economic and political uncertainties in Brazil and other emerging markets and the global economic slowdown. In 2003 and 2004, the real appreciated 18.2% and 8.1%, respectively, against the U.S. dollar. In the first quarter of 2005 the real depreciated 1% against the U.S. dollar. Further fluctuations in the Brazilian currency, in relation to the U.S. dollar or other currencies, may have an adverse effect on CSN's financial condition and results, increasing the cost in reals of CSN's foreign currency denominated borrowings and imports of raw materials, particularly coal and coke. Inflation and Interest Rate Risks High inflation rates have in the past had negative effects on the Brazilian economy and CSN's business. During 2002, the Central Bank raised Brazil's base interest rate by a total of 7.5% to 26.5% as a result of the growing economic crisis in Argentina, one of Brazil's primary trading partners, the lower level of growth of the U.S. economy and the economic uncertainty caused by the Brazilian presidential elections, among other factors. During 2003, the Central Bank decreased Brazil's interest rate from 26.5% to 16.5%, reflecting the good momentum and inflation stability in line with the Central Bank's inflation target. During 2004, the Central Bank increased Brazil's base interest rate by 1.25% to 17.75%, on concerns that growth in Brazil's gross domestic product could jeopardize the inflation target. Competition The main competition of CSN in Brazil are Arcelor Brazil, Metallurgica Gerdau, Companhia Siderúrgica Paulista (COSIPA), Usiminas and CST-Brazil. The primary competitive factors in the domestic market include quality, price, payment terms and customer service. Although CSN competes with other integrated Brazilian steel mills, it has not experienced significant import competition in Brazil from foreign steel companies. Several foreign steel companies, however, are significant investors in Brazilian steel mills. CSN has these competitive advantages over its Brazilian competitors: • Its focus on selling high margin products, such as tin plate, pre-painted, galvalume and galvanized products, in its product mix. • It owns its iron ore reserves, compared to domestic competitors who purchase their iron ore requirements (mainly from