Question

What are the reason of S and L crisis ,

,Question regarding mexican peso crisis And devaluation of 1994
What are the factors contributed to mexican peso crisis?

Answer 1

The S&L system was created to provide lower interest rates mortgage to incentivize home ownership. These S&L were founded to pay lower interest rates on deposits and they also extended lower interest rates on mortgages.

In the 1970s there was stagflation which meant there was low level of economic growth and also combined with high level of inflation. Due to the presence of stageflation and the presence of ceilings on the deposit and lending rates, S&L could not compete as banks offered better interest rates.Due to the adverse conditions and stagflation, S&L could not compete and became highly loss making.

The mexican peso was devalued in the year 1994 during the presidential election and there was hyperinflation in Mexico. Due to the expansionary fiscal and monetory policies of the Mexican government, the treasury of Mexico floated bonds to finance the expansionary policies. The central bank also intervened to maintain the peg of the Mexican peso to the dollar and this resulted in a trade deficit and Mexcico was on the business of default.
The Mexican peso was then allowed to devalued in order to restore market confidence and this again resulted in hyperinflation in the country.