V.13:06: (252-254): The Ratio Of Inflation Rates And Currency Trends by John Kean
Exchange rates fluctuate on a second to second basis, but the long-term trends can be understood by using an indicator based on the ratio of inflation rates. The
case in point? The recent Mexican peso debacle.
Picture this: A robust developing economy, a democratically maturing political system and a newly adopted treaty eliminating trade tariffs with the world's greatest consumer economy (which also happens to be its northern neighbor). A situation like this could only point to good investment times ahead, wouldn't you think?
The seemingly rosy situation had some well-recognized glitches in the picture, such as a nasty rebellion in a southern state and the recent assassination of a political candidate. But the world, and particularly the US, is no stranger to such vicissitudes, and these glitches appeared to be simple bumps in the road to be endured by willing investors.
Who could have seen a dollar-denominated crash coming for Mexico?