HW-1547 Pennfoster Macroeconomics Paper – Mexican Peso and ETF EWW

Emerging market: Mexico

Currency: Mexican Peso (MXN)

ETF: EWW

Introduction

Mexico is one of the fastest growing emerging markets. Like most of the developed and emerging markets, Mexico adopted floating exchange rate system in 1994. Since 1954, Mexico was maintaining a fixed peso-dollar exchange rate system. The collapse of Bretton Woods system in 1971, and infamous oil shock of 1973 forced many countries to abandon fixed rate system. But, Mexico preferred to continue with peso-dollar exchange rate system. Rising accumulated foreign debt, large capital flight, high inflation, ineffective import substitution policy etc forced Mexican government to devalue Peso in 1976. But, mere devaluation of peso could not solve economic problems. Mexico experimented with two rate system: preferential rate and free market rate, but that too did not work. Finally, Mexico adopted floating exchange rate system in 1994. (Source: cuhk.edu.hk)