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Definition of 'Tequila Effect'
Informal name given to the impact of the 1994 Mexican economic crisis on the South American economy. The Tequila Effect occurred because of a sudden devaluation in the Mexican peso, which then caused other currencies in the region (the Southern Cone and Brazil) to decline. The falling peso was propped up by US$50 billion loan granted by then U.S. president Bill Clinton.
Also referred to as the "Mexican Shock".
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Investopedia explains 'Tequila Effect'
Immediately after the Mexican peso was devalued in the early days of the Presidency of Ernesto Zedillo, South American countries suffered rapid currency depreciation. It was a known fact that the peso was overvalued, but the extent of Mexico's economic vulnerability was not well known. Since governments and businesses in the area had high levels of U.S. dollar-denominated debt, the devaluation meant that it would be increasingly difficult to pay back the debts.
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Search results for 'Tequila Effect'
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http://www.investopedia.com/articles/basics/03/030703.asp
... If all these warrants are activated, then Cory's Tequila Corporation will have to
sell 100 shares from its treasury to the ... This effect is known as dilution. ...
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http://www.investopedia.com/articles/02/060502.asp
... Endowment Contract Trap.) Example Let's examine the inventory of Cory's Tequila
Co. ... see from the ratio results, inventory analysis can have a big effect on the ...
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