• Sun. Mar 3rd, 2024

Mexico’s Financial Landscape in 2024: Navigating Exchange Rate and Interest Rate Risk with Derivatives


Feb 12, 2024
Currency risk and high rates are the main focus of hedging contracts

In 2024, financial coverage for retail or institutional investors such as Afores or investment funds will focus on the exchange rate (peso-dollar) and interest rates, predicts José Miguel de Dios, general director of the Mexican Derivatives Market (MexDer). The director of the derivatives exchange in Mexico assured that in this election year and interest rate movements, investors will use exchange rate and interest rate futures or options to cover their risks of shocks in the exchange rate, to pay for inputs, a loan or to protect an investment.

The volatility generated by the elections in Mexico and the United States, as well as the start of the first decreases in central banks’ reference rates, will begin to create volatility in investors’ portfolios. This will be a year of extreme volatility in the financial market, which raises the possibility of high fluctuations in assets of retirement workers and retail investors.

Meanwhile, amid greater liquidity and broader client participation, Mexican peso futures contracts on the Chicago Mercantile Exchange (CME) Group reached a record average daily volume (ADV) in 2023. The continued growth of the Mexican economy combined with current interest rates has led more clients to trade currency futures at CME Group. As client participation continues to increase, they are focused on creating and maintaining liquidity that supports long-term development of electronic foreign exchange markets in Latin America. The Mexican peso ended 2023 as its best year ever with a gain of 13 percent against US currency to close at 16.96 units per dollar spot.

Paul Houston explained that many large global institutional investors would do well to add CME Group to their lists of price providers for Latin American currencies so they can take advantage of its liquidity both globally and locally. He gave an example that currency futures operations in Latin America reached record $1.8 billion ADV (equivalent reference value) for Mexican peso contracts while Brazilian real futures also hit all-time highs with $300 million ADV (equivalent benchmark).

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