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Investing in Mexican Peso

Making any decision to invest in a currency entails certain amounts of risk. That is why people have traditionally used the US dollar as a currency of choice over the years. Recent times have seen a change from this trend. As most of the big currencies like the US dollar, the Euro, the GB pound and other developed countries’ currency does not offer enough potential to make profit due to their inherent stability. That is why so many investors are turning to currencies from emerging markets to make their investments and to earn profits.

One of the basic rules of trading currencies in the Forex market is that you can trade currencies against each other. For instance if you ask for a quote for Mexican peso you will always get it in relation with another currency. As of today, Mexican peso is trading at 13.86 pesos to a dollar or if you consider Euro, it has an exchange rate of one Euro to 18.04 MXN. Similarly, you can find quotes for any currency in reference to other currencies. Usually the US dollar is the base currency; investors use it to buy or sell other currencies on the Forex market.

The Mexican peso is one of those currencies, which has garnered quite a bit of interest among investors. There are a number of reasons why investors are taking a huge amount of interest in the Mexican Peso. Some of them are domestic while others are global. To start with, if you look at the performance of the Mexican peso against all other major currencies over the period of the past ten or twelve years, it has mostly held its own against most currencies with enough variation to keep the investors interested. Let us take its performance against the US dollar as an example. It has a mean variation of about three pesos from nine to 12 pesos against a dollar. It means that fundamentally, the currency is strong and technically, it offers enough variation.

Another interesting thought is that the Mexican economy is very sound fundamentally. It has maintained a steady growth rate over the period of the past decade or so. Although most experts maintain that the Mexican economy should have done even better. It means that there is room for improvement and growth in that economy. A major portion of  their economy is the manufacturing and exporting of high-end technical products like electronics and automobiles. Unlike most emerging economies, they do not just put together the finished product. Rather they also make a lot of parts that require precision and technical expertise. It also has a very strong banking sector, which attracts the second highest direct foreign investment after their industrial sector. They are also part of several free trade agreements with several different countries, including Israel, U.S.A, the Euro economic zone and others.

Their biggest weakness is their extreme dependence on the U.S.A, as it makes them vulnerable to economic down shift in the US economy. In addition, they need to find new markets among the nations who are fast developing to ensure that they have a place to sell their goods even if the going gets tough for top trading nations.

 

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Modified:12/30/2011
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