Analyzing Foreign Exchange and Investment Economics Essay

Analyzing Foreign Exchange and Investment
Student’s Name:
Institution:
Professor:
Unit Name & Number:
Date of Submission:
Analyzing Foreign Exchange and Investment
Introduction
Exchange Traded Fund (ETF) refers to a type of exchange-traded product, and investment fund traded in stock exchanges. They are related to mutual funds, although ETF is sold and bought throughout the day on stock exchange markets (Krause et al., 2014). An ETF holds asset which includes bonds, currencies, stocks, and commodities such as bars of gold and operates in an arbitrage scenario intended to keep it trading close to its asset net value although deviations can occur.
Mexican Exchange-Traded Fund
Currently, there are no Mexican peso ETFs open in the market. Mexican peso ETF permits investors to be exposed to Mexican currency without the need for complicated foreign exchange accounts. The ETF seeks to track the investment results of a broad index that consists of Mexican equities. The largest Mexico ETF is iShares MSCI Mexico (EWW). They trade using four EFTs, including EWW, FLMX, HEWW, and MEXX, with total assets of $ 810.97 million with an average expense ratio of 0.060%.
Macro-Economic Analysis of Mexican Peso Against US Dollar

2015

2016

2017

2018

2019

2020

Exchange rate against USD

17.18

20.73

19.65

19.65

18.93

20.43

Mexican Peso has been recovering losses suffered when the current pandemic hit, and it jumped into an all-time low amidst the fall in prices of international oil. Currencies of emerging markets have recently rallied in larger percentages due to shifts to risky assets by investors. A weaker United States dollar and improvements in global markets have helped the Mexican Peso strengthen over the recent weeks.
The government's fiscal policies, large amounts of liquidity injected by the central banks worldwide to cushion economic and financial fallout, and release of positive employment data in the United States have reignited investors' risk appetite on risky assets. The Fed policy-setting meeting held in June 2020 explains that the rates will stagnate near-zero in the foreseeable future despite the rates cuts by Banxico, making the Mexican Peso more attractive and strengthening against the dollar.
Over the last decade, different sound orthodox strategies have influenced Mexico's macroeconomic policies, such as nominal exchange rates driven by flexible government, central banks' autonomy, responsible fiscal policies, and several trade agreements and tariffs (Bustamante et al., 2019). However, the rate of exchange has continually depreciated against the US dollar despite an equilibrium relationship between the US and Mexico prices and the exchange rate. The Mexican Peso has dropped by about 50% against the USD in the last five years, about 70% in the last decade, nearly 100% in the last 15years, and about 500% over the previous 25 years.
According to Abugri (2008), loss of productivity is the main reason for the persistent long-term depreciation of the Mexican currency compared to the United States. Additionally, the astounding liquidity provided by the federal bank of the United States in 2016 enabled the Mexican Peso to gain value against the USD. Floating exchange rates with less general public involvement in the forex market may behave stochastically. However, Mexico's change in exchange rate policies towards such administration has never changed the country's currency's long-term trend. We can argue tha...