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Economy-Business - Essay Example

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The purpose of this essay is to reflect on issues relating to American investment into Mexico and the risk associated with fluctuations of the Mexican Peso (M$) related to the American Dollar (US$). From this perspective this paper will provide a critical perspective from two…
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Download file to see previous pages... Secondly this paper will discuss the possibility of the Mexican Peso being strong as a result of anticipated better performance of the Mexican economy relative to the American economy in the future.
There is little question that under present economic circumstances the dollar an peso exchange rate is in a constant state of flux owing to the fact that these two currencies are allowed to float freely against one another and may experience changes resulting from market conditions. However it should be noted that at one point in these nations’ histories the Peso was pegged to the Dollar. Under this fixed exchange rate regime there was effectively no risk associated with any appreciation or depreciation as the M$ was set at a fixed rate to the US$. However it was the case that there was significant inflation in Mexico in the early 90’s so a crawling peg system emerged which meant that the peso needed to be devaluated and as such the M$-US$ exchange rate would occasionally be altered by the central bank. However since Mexico’s introduction into NAFTA the currency has been free to float at its market value exchange rate with the United States.
At Natural Detergent it has been argued by some senior executives that the relative value of the Peso would decline against the Dollar because the United States has a long history of outperforming the Mexican economy. Implicit in this statement is that the American economy has always outperformed the Mexican Economy and secondly a better performing economy has a stronger currency. According to the World Bank World Development Indicators (2009) the real annual growth rates for Mexico and the United States from 1997-2009 are available in the appendix #1 however the Mexican economy actually outpaced the growth of the American economy eight out of the last thirteen years. However according to MSN Money (2010) during the ...Download file to see next pagesRead More
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