Mexican Peso: Comparison With The US Dollar

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The foreign currency chosen in the comparison against the U.S. Dollar is the Mexican Peso (MXN) for the years of 2005 to 2010. The Mexican Peso has had a history of periods of stability that have been followed by periods of inflation and devaluations. In 1993 the Bank of Mexico introduced a new currency, the “new peso” which brought more stability to the economy. There was more demand internationally for Mexican stocks and treasury certificates known as Cetes, this kept the New Peso at a stable level of about 3.1 for most of 1993. After briefly reaching 11.50 to the dollar in the late 1990’s, the peso had several years of ups and downs, gaining to less than 10 to the dollar just before the global economic crisis of 2008. Since that crisis…show more content…
This sharp drop in exports to the United States led to a large drop in industrial production. Mexico’s high economic dependence on the United States made the external demand shock particularly severe. Between the third quarter of 2008 and the second quarter of 2009, 700,000 jobs were lost, 260,000 of them in manufacturing, which negatively affected the flow of remittances to Mexico. Remittance inflows, which are largely from the United States, are Mexico’s second-highest source of foreign currency after oil. The country’s fiscal position also weakened because oil revenues fell, partly due to the drop in international energy prices brought about by the global recession as well as the decline in domestic oil production. (Sidaoui, Ramos-Francia and Cuadra, 2010) Mexico’s gross domestic product (GDP) contracted by 6.6% in 2009, the sharpest decline of any Latin American economy. Another area affected by the US crisis was exchanged traded funds (ETF), a unique investment fund that has properties of both mutual funds and stocks. One Mexican ETF known as EWW, is a security that tracks a basket of assets, but trades like a stock. EWW tracks the MSCI Mexico Investable Market; this equity index measures the performance of the Mexican equity market. iShares MSCI Mexico (EWW) falls under the Latin America Equities category and is comprised of 59 holdings spanning every sector of the economy and carries an expense ratio of 0.50%.
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