| The Mexican meltdown in December 1994 was a major disaster for foreign companies and fund managers with investments in the country, and a strong reminder of the investment risks of emerging markets. But increased risk awareness, paradoxically, did not help the nascent derivatives market that had been flourishing in Mexico for a few years before the peso devaluation. Rather, it went backwards, dragging down the derivatives markets of other emerging markets in the process. In the aftermath of the devaluation, panicky investors fled to safer havens as volatility increased and liquidity dried up in the underlying stocks of these markets. |
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