International Journal of Social Science & Economic Research
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Title:
EXAMINATION OF EXCHANGE RATE AND INTEREST RATE DIFFERENTIALS FOR UNITED STATES AND MEXICO

Authors:
Ishaan Roy, Lakshita Joshi, Shaariq Daredia, Krish Verma, Gautam Narayan and Riddhi Kapoor

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Ishaan Roy, Lakshita Joshi, Shaariq Daredia, Krish Verma, Gautam Narayan and Riddhi Kapoor
Bachelor of Science in Economics, NMIMS, Mumbai

MLA 8
Roy, Ishaan, et al. "EXAMINATION OF EXCHANGE RATE AND INTEREST RATE DIFFERENTIALS FOR UNITED STATES AND MEXICO." Int. j. of Social Science and Economic Research, vol. 5, no. 10, Oct. 2020, pp. 2843-2868, doi:10.46609/IJSSER.2020.v05i10.007. Accessed Oct. 2020.
APA 6
Roy, I., Joshi, L., Daredia, S., Verma, K., Narayan, G., & Kapoor, R. (2020, October). EXAMINATION OF EXCHANGE RATE AND INTEREST RATE DIFFERENTIALS FOR UNITED STATES AND MEXICO. Int. j. of Social Science and Economic Research, 5(10), 2843-2868. doi:10.46609/IJSSER.2020.v05i10.007
Chicago
Roy, Ishaan, Lakshita Joshi, Shaariq Daredia, Krish Verma, Gautam Narayan, and Riddhi Kapoor. "EXAMINATION OF EXCHANGE RATE AND INTEREST RATE DIFFERENTIALS FOR UNITED STATES AND MEXICO." Int. j. of Social Science and Economic Research 5, no. 10 (October 2020), 2843-2868. Accessed October, 2020. doi:10.46609/IJSSER.2020.v05i10.007.

References

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Abstract:
This paper analyses the trading relationship between US and Mexico, by examining the interest rate differentials, domestic rate of inflation in each nation, and productivity ratios, while evaluating its impact on nominal and real exchange rates. This is combined with a focus on interest rate differentials and its impacts on the flow of various types of capital, such as Foreign Portfolio Investment and Foreign Direct Investment, and vice versa. The results indicated that most of the theories proposed by international economics concepts, such as the relationship of interest rates and exchange rates in discerning relative and absolute PPP, were found to be statistically insignificant. However, the major finding was that the nominal exchange rate depicts a one-to-one equalization with productivity ratios, which implies a negative Balassa- Samuelson effect for Mexico. Additionally, it was found that capital flows and interest rate differentials do not affect each other, in terms of statistical significance.

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