Mini Case International Financial Management Fifth Edition Mexico’s Balance of Payments Problem

Mini Case

International Financial Management Fifth Edition

Mexico’s Balance of Payments Problem

Mexico experienced larger 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.

Investigate the Mexican experiences in detail and write a report on the subject.

·         Mexico’s key economic indicators; BOP, the exchange rate, and foreign reserve holdings, during the period 1994-1995

·         Causes of Mexico’s balance of payments difficulties prior to the peso devaluation

·         Policy actions for prevent and mitigate the balance of payment problem and the subsequent collapse of the peso

·         Lesson from the Mexican experience that may be useful for other developing countries