ns to tumble downward due to increased unemployment and a lower demand for goods. This may cause the dollar to strengthen as the people move away from the uncertain peso. IV. Exchange rate See graph attachment. V. Devaluation of the Peso Due to the weaken peso, caused by constant printing of money and high inflation, Mexican investors took close to $11 billion dollars out of Mexico in a few days in December 1994. The political turmoil from regional insurrection to a string of assassinations and disrupted elections help cause the collapse of the peso, requiring a $20 billion bailout from the U.S. Treasury. The International Monetary Fund has pledged another $17.8 billion, while the central banks of other industrialized nations, acting through the Bank of International Settlements, are obligated for an additional $10 billion. (Banda) VI. Advantages/Disadvantages of Importing/Exporting Goods A Houston company exporting to Mexico will find some difficulty selling its goods in a country were the peso is weak against the U.S. dollar. The Mexican businesses will be forced to buy only the necessities due to the unfavorable exchange rate. However, on the positive side, if the Mexican businesses expect that the peso will devalue further, it may decide to purchase big ticket items now in hopes of beating any further devaluation. A Mexican company whose primary business is exporting Mexican made products to the U.S. will enjoy the weak peso, strong dollar economy. Imports from Mexico into the U.S. has resulted in an $8.6 billion trade deficit with Mexico for the first six months of 1995. While the Mexican company is paying for its labor and overhead with weakened pesos, it is receiving a stronger U.S. dollar for its goods. The company can request payment in the stronger U.S. dollar and invest them into various financial instruments until the peso can rebound or is ...
