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Essay Available:
Pages:
6 pages/≈1650 words
Sources:
5 Sources
Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
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Topic:

The Mexican Peso Crisis

Essay Instructions:

Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation in December 1994, followed by the decision to freely float the peso. These events also brought about a severe recession and higher unemployment in Mexico. Since the devaluation, however, the trade balance has improved.
1. Investigate the Mexican experiences in detail and write an APA style 5 - 8 page report on the subject. In the report, you may:
(a) document the trend in Mexico’s key economic indicators, such as the balance of payments, the exchange rate, and foreign reserve holdings, during the period 1994.1 through 1995.12.;
(b) investigate the causes of Mexico’s balance of payments difficulties prior to the peso devaluation;
(c) discuss what policy actions might have prevented or mitigated the balance of payments problem and the subsequent collapse of the peso; and
(d) derive lessons from the Mexican experience that may be useful for other developing countries.
In your report, you may identify and address any other relevant issues concerning Mexico’s balance of payment problem.
2. Define the balance of payments.
3. Why would it be useful to examine a country’s balance of payments data?
4. The United States has experienced continuous current account deficits since the early 1980s. What do you think are the main causes for the deficits? What would be the consequences of continuous U.S. current account deficits?
5. In contrast to the U.S., Japan has realized continuous current account surpluses. What could be the main causes for these surpluses? Is it desirable to have continuous current account surpluses?
6. Comment on the following statement: “Since the U.S. imports more than it exports, it is necessary for the U.S. to import capital from foreign countries to finance its current account deficits.”
WRITING GUIDELINES:
• The length of this paper should be between 5-8 pages (not including the title page, table of contents or reference page) in APA formatting, double spaced, with 1-inch margins and 12 point Times New Roman font.
• Your paper must have an INTRODUCTION and CONCLUSION paragraphs.
• Please submit in a word document and NOT pdf version.
• You should use headings and subheadings to organize your paper.
• Use at least 5 academic, scholarly or professional practitioner sources, and minimum 10 in-text CITATIONS are required.
• You must cite and reference all texts used, including page numbers to avoid plagiarism.
• Paper should be proofread for spelling and grammar mistakes

Essay Sample Content Preview:
Mexican Peso Crisis Student’s Name Institutional Affiliation Table of Contents  TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc19956600" The Mexican Peso Crisis  PAGEREF _Toc19956600 \h 3  HYPERLINK \l "_Toc19956601" Key Economic Indicators  PAGEREF _Toc19956601 \h 3  HYPERLINK \l "_Toc19956602" The Causes of Mexico’s Balance of Payments Difficulties Before the Peso Devaluation  PAGEREF _Toc19956602 \h 5  HYPERLINK \l "_Toc19956603" Policy Actions that might have Prevented or Mitigated the BOPs Problem and the Subsequent Collapse of the Peso:  PAGEREF _Toc19956603 \h 6  HYPERLINK \l "_Toc19956604" Lessons that can be derived from the Mexican experience  PAGEREF _Toc19956604 \h 7  HYPERLINK \l "_Toc19956605" Balance of Payments  PAGEREF _Toc19956605 \h 7  HYPERLINK \l "_Toc19956606" The Importance of Examining a Country’s Balance of Payments Data  PAGEREF _Toc19956606 \h 7  HYPERLINK \l "_Toc19956607" United States: Continuous Current Account Deficits  PAGEREF _Toc19956607 \h 8  HYPERLINK \l "_Toc19956608" Japan: Continuous Current Account Surpluses  PAGEREF _Toc19956608 \h 9  HYPERLINK \l "_Toc19956609" Comment on: “Since the U.S. imports more than it exports, it is necessary for the U.S. to import capital from foreign countries to finance its current account deficits.”  PAGEREF _Toc19956609 \h 9  HYPERLINK \l "_Toc19956610" Conclusion  PAGEREF _Toc19956610 \h 10  The Mexican Peso Crisis Countries all over the world engage in international transactions, where the statistical data that is documented in a record known as the balance of payments. Some of these transactions include cross-border investments, bank accounts, bonds, securities, and real estate, and the export and import of goods and services. The balance of payments data is essential in several ways, including providing information regarding the supply and demand of a country’s currency and as a signal of a country’s potential in becoming a business partner with other countries. Countries can run balance of payment deficits or surpluses by engaging in various approved central bank reserve transactions. Key Economic Indicators U.S. Dollar versus Mexican Peso Exchange Rate (November 1, 1994–January 31, 1995)  Source: Eun and Resnick (2015, p.50) Spot Exchange Rates 1994 (January-December): Mexican Pesos/US Dollars  Source: Curtis, Gladish, Guntupalli, and McElnea (2005, p.2) Mexican Foreign Reserves Source: IMF Statistics  Source: Curtis, Gladish, Guntupalli, and McElnea (2005, p.4) Lending Interest Rates in Mexico  Source: Curtis, Gladish, Guntupalli, and McElnea (2005, p.4) The Causes of Mexico’s Balance of Payments Difficulties Before the Peso Devaluation Two significant causes can be blamed for Mexico’s balance of payments before the peso devaluation. First, the government, under president Ernesto Zedillo, devalued the peso against the dollar by 14 percent. This decision by the Mexican government led to a rush sale of pesos and Mexican bonds and stocks, which, subsequently caused the peso to fall against the US dollar by as much as 40% by early January 1995 (Eun and Resnick, 2015, p.48-49). Consequently, the government was forced to float the peso. The second cause i...
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