Exchange-Rate Risk Mitigation with Price-Level-Adjusting Mortgages: The Case of the Mexican UDI

Joseph B. Lipscomb (), John Harvey () and Harold Hunt ()
Additional contact information
Joseph B. Lipscomb: Texas Christian University, Fort Worth, TX 76129
Harold Hunt: Texas A&M University, College Station, TX 77843-2115

Journal of Real Estate Research, 2003, vol. 25, issue 1, pages 23-42

Abstract: In 1995, Mexico introduced a credit system based on a price-level-adjusting unit of account called the Unidad de Inversion (UDI, pronounced “oo-dee”), which is Spanish for “unit of investment.” The Bank of Mexico maintains an UDI Index, which sets the peso value of an UDI on any given day. Loans denominated in UDIs maintain their purchasing power and provide a real rate of return in the local currency, pesos. The focus of this study is the real rate of return earned by dollar investors in UDI mortgages. Most dollar investors fear exposure to exchange rate losses in unstable currencies. In this paper, we examine the real-dollar rate of return and the extent to which the inflation adjusting aspect of the UDI mitigates the losses from currency devaluations. We also examine exchange-rate patterns relative to purchasing-power-parity to find investment strategies that increase the real-dollar rate of return on investments in Mexico’s UDI mortgages.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2003
View citations in EconPapers

Downloads: (external link)
http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol25n01/02.23_42.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:jre:issued:v:25:n:1:2003:p:23-42

Ordering information: This journal article can be ordered from
Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
http://aux.zicklin.b ... u/jrer/about/get.htm

Access Statistics for this article

Journal of Real Estate Research is edited by Dr. Ko Wang

More articles in Journal of Real Estate Research from American Real Estate Society
Address: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Series data maintained by JRER Graduate Assistant/Webmaster ().