TOPICS: "Currency Risk"
SUMMARY: All Latin American countries received strong investment flows because of quantitative easing in the U.S. Now, the prospect of higher interest U.S. interest rates and the decline in global commodities prices are pushing Latin American currencies to multiyear lows against the U.S. dollar. The Mexican peso, the most traded of the emerging-market currencies, was at an all-time low of 16.012 per dollar in late New York trading Monday. Unlike some of its Latin American countries, Mexico could benefit from a weaker currency, given that four-fifths of its exports are shipped to the U.S., and manufactured goods account for more than 80% of total exports. Also, the weaker peso increases the local currency value of money sent home by Mexicans living in the U.S., and cushions the impact of lower oil prices on government revenue. Colombia's peso and the Brazilian real were at their weakest levels against the U.S. dollar since 2004.
QUESTIONS:
1. (Introductory) What factor in the U.S. led to strong investment in Latin American countries?
2. (Advanced) Why are Latin American currencies hitting multiyear lows against the U.S. dollar?
3. (Advanced) How would Mexico benefit from a weak peso?