Reference no: EM132494569

Problem: Recently, Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation in December 1994, followed by the decision to freely float the peso. These events also brought about a severe recession and higher unemployment in Mexico. Since the devaluation, however, the trade balance has improved. Investigate the Mexican experiences in detail and provide the following in your answer:

(a) Document the trend in Mexico's key economic indicators, such as the balance of payments, the exchange rate, and foreign reserve holdings, during the period 1994.1 through 1995.12.;

(b) Investigate the causes of Mexico's balance of payments difficulties prior to the peso devaluation;

(c) Discuss what policy actions might have prevented or mitigated the balance of payments problem and the subsequent collapse of the peso