Monday, October 6th, 2008...3:28 pm
Exchange Rate
I am not a currency trader and am ignorant as to what drives changes in exchange rates, but I do follow the USA dollar/Mexican peso exchange rate. I find curious the recent fairly substantial drop in the relative value of the peso.
When I opended my Mexican bank account in April of 2006 the exchange rate was around $10.7 pesos to $1. USA. The rate crept up to about $11. to $1. in the run up to the July, 2006 Mexican presidential election. My banker at the time told me that the value of the peso would probably increase after the election, a prediction which proved correct. The value of the peso has been generally increasing since, with the exception of a couple of drops in the peso’s value in March and September of 2007, to the point at the beginning of August of this year of a rate of $9.9 pesos to $1. USA dollar.
Since early August the peso has steadily lost value to a rate today of $11.79 pesos to $1. USA.
THE NEXT MORNING: And now this next morning the peso has further declined to $12.17 to $1.
I guess I should note that the decline has little effect on my daily life, other than perhaps an increase in the prices of imported goods. Also it may be a good time for me import dollars to my Mexican bank account, and for those in the USA to vacation in Mexico.
AND THIS AFTERNOON: $12.33 to $1.
WEDNESDAY MORNING: $13.18 to $1.
MEXICO CITY, Oct 8 (Reuters) - The Mexican peso extended its decline against the dollar on Wednesday pressured by soaring demand from local investors and companies in need of the greenback to meet foreign currency-denominated payments, traders said.
By Angela Kocherga / 11 News
EL PASO, Texas—The financial crisis is having an effect along the Texas and Mexico border.
Many are concerned that Mexico’s peso continues to tumble lower against the dollar.
It has been that way for the past several days.
Experts say that Texas businesses that depend on shoppers from Mexico are preparing for a rough holiday season.
Some shopkeepers in El Paso say they are already seeing a drop in sales.
According to experts, the impact is likely to be felt well beyond the border in our state.
That’s because, experts say, shopping is one of the main reasons tourists from Mexico visit Houston.
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3 Comments
October 6th, 2008 at 10:25 pm
At work today my boss said that the economy in Europe was going down the tubes too. All of this economic chaos makes me feel stupid! I mean, how can the entire world’s economy go *kaput*?? Is it a matter of too many people owing money that is essentially nonexistent? I may have spent more than half of my life in school, but I feel entirely in the dark on this whole ordeal!! :)
October 7th, 2008 at 11:21 am
Hey aighmeigh,
I’m enjoying reading your ruminations at your blog and wish you the best in pursuance of your move.
As for the economic situation, not that I really know that much about it, my reading is that the current situation has resulted from a number of factors. Here’s my way over simplified view.
Chief amongst the factors, it seems to me, are the fact that the Federal Reserve, under Greenspan’s leadership, kept interests rates too low for too long (to facilitate Bush’s reelection, I believe) and encouraged the proliferation of creative mortgage products.
The low interest rates resulted in explosion of mortgage issuance and refinancing which drove up the value or homes 20 - 40% above historical levels relative to wages and rents. The so called “housing bubble”.
Another chief factor was the proliferation of esoteric securities , particularly mortgaged back CDOs the value of which was dependent upon ever increasing values of the properties subject of those mortgages.
The securities were improperly valued by their holders, so vendors could reap their bonuses and the company could provided a rosier picture to its shareholders. The securities were improperly rated by the rating agencies and insured by imprudent insurers and via “credit default swaps”.
And the bubble burst, as they always do.
The investment banks which had created, vended, and held onto hundreds of billions of dollars of the esoteric mortgaged backed securities were stuck with securities of plummeting and uncertain value.
Not knowing how much of the toxic debt other banks held, banks quit lending to each other as in the normal course of economic activity. Thus the credit markets seized up and without access to short term credit the investment banks and insurance firms became under capitalized and began to fail. Thus necessesitating the various bailouts to prevent a complete economic collapse.
Saludos
October 7th, 2008 at 10:24 pm
Wow… thank you for the first understandable explanation of this chaos that I’ve come across so far. So much of what I read alludes to information that I don’t have or uses too much economic jargon for my liking. Anyway, I appreciate the perspective and have a stronger mental grasp on this ridiculous situation, thanks to you.
I’m very glad that you are enjoying my random banter. I hope that soon enough my writing will focus more on living and less on over-thinking :)
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