Recently, Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation in...

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Economics

Recently, Mexico experienced large-scale trade deficits,depletion of foreign reserve holdings and a major currencydevaluation in December 1994, followed by the decision to freelyfloat the peso. These events also brought about a severe recessionand higher unemployment in Mexico. Since the devaluation, however,the trade balance has improved. Investigate the Mexican experiencesin detail and provide the following in your answer:
(a) document the trend in Mexicoâ€™s key economic indicators, suchas the balance of payments, the exchange rate, and foreign reserveholdings, during the period 1994.1 through 1995.12.;
(b) investigate the causes of Mexicoâ€™s balance of paymentsdifficulties prior to the peso devaluation;
(c) discuss what policy actions might have prevented ormitigated the balance of payments problem and the subsequentcollapse of the peso
(d) derive lessons from the Mexican experience that may beuseful for other developing countries.
In your answer, you may identify and address any other relevantissues concerning Mexicoâ€™s balance of payment problem.International Financial Statistics published by IMF provides basicmacroeconomic data on Mexico.

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The economy of Mexico is a developing market economyMexico has a strong economy with a gross domestic product that ranks 15th globally Mexican Economy also ranks 11th interms of purchasing power parity according to the International Economy Growth of the economy was not smoothlt had to go through a several difficulties and some imabalances still persist in the EconomyPeso crisis popularly known as tequila crisis was the most severe economic crisis in the history of MexicoThe crisis can be attributed to overspendingButas with all crises there is far more to it than just living beyond ones meansThis story involves rebellion assassination fatricide corruption friendship bailout and at last a good ending Lets look at the causes of the crisis lax See Answer

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