"É a melhor instituição do país."
Translation:It is the best institution of the country.
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But the translations still have to make sense in English, or you are not learning the language. It certainly should not penalise an answer that is grammatically correct in English and prefer one that is not. There is no disagreement that you would use "de/do" in Portuguese and no disagreement that "de" usually means "of" when translated into English, but it does not always mean "of" and it is incorrect to translate it as "of" in this sentence. Following your argument would lead to translating a prominent word like "tem" as "has" in all contexts, whereas sometimes it means "there is".
I was going to say this too but maybe there is a difference. An institute suggests something like a school/college or group such as a miners institute, whereas an institution suggests something wider, like prison, hospital or government.Sorry if I'm waffling, either can be used, except by duolingo