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

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  • Joseph Lipscomb
  • John Harvey
  • Harold Hunt

Abstract

This article is the winner of the Real Estate Finance manuscript prize (sponsored by the Fannie Mae Foundation) presented at the 2002 American Real Estate Society Annual Meeting.In 1995, Mexico introduced a price-level-adjusting unit of account called the Unidad de Inversion (UDI). Loans denominated in UDIs maintain their purchasing power and provide a real rate of return in pesos. This study examines the real rate of return earned by dollar investors in UDI mortgages and the extent to which the inflation-adjusting aspect of the UDI mitigates losses from currency devaluations. Exchange-rate patterns relative to purchasing power parity are also examined to find investment strategies that increase the real-dollar rate of return on investments in Mexico’s UDI mortgages.

Suggested Citation

  • Joseph Lipscomb & John Harvey & Harold Hunt, 2003. "Exchange-Rate Risk Mitigation with Price-Level-Adjusting Mortgages: The Case of the Mexican UDI," Journal of Real Estate Research, Taylor & Francis Journals, vol. 25(1), pages 23-42, January.
    • Handle: RePEc:taf:rjerxx:v:25:y:2003:i:1:p:23-42
    DOI: 10.1080/10835547.2003.12091103
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