“Mexico’s largest trading partner is the US. Given that the US is in the early stages of economic expansion, Mexican stocks would be attractive investments” Correct or Incorrect I said incorrect. Reasoning: yes that is good for Mexico stocks if a large trading partner is in economic expansion, however there are several risks that should be taken into consideration before investing in emerging markets, specifically political risk, currency risk, inflation, financial stability (i.e current account deficit), etc. The answer was correct. I think it would be rediculous to invest in an emerging market solely based on the growth of a trade partner. Mexico could be in a civil war with a corrupt government and 25% inflation. Comments?
the question, i believe, is trying to inform you that the mexican market is highly correlated with the us economy. and those factors you mention are likely to add as premium to the mexican returns. on a risk adjusted basis it may not work if the individual/institution is risk adverse.