Exchange-traded fund

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The exchange-traded fund has made its way into the stock exchange markets, influencing currency exchange rates and emerging market patterns. The pattern is primarily driven by the fact that developed economies are constantly forming trading partnerships with emerging markets. The emerging markets' stock exchanges have risen; similarly, the Colombian Peso (COP) has been performing steadily against the US dollar (USD). The exchange-traded fund is a mutual investment vehicle whose securities are traded on the stock exchange during the day at a market-determined amount. Columbia benefits from ETFs as one of the most successful financial innovations in recent years. The Columbian Peso is the currency used in the Columbian stock market, and therefore it is the currency utilized in their respective ETF market. Therefore, this paper seeks for studying the Exchange Trade fund in Columbia analyzing the performance of Columbia Peso against United States dollar, from 2005 to 2010.

The Columbian Peso historically demonstrates a heightened volatility against the United States Dollar. The volatility of the currency is as a result of the push-ups and pits by external and internal factors (Vargas 129). In the periods between 2005 and 2010, the currency experienced sizeable swings against the United Stated dollar making economists term it as the most volatile Latin America currency (CTI 289). The swings highly affect the ETF market in the area, even against other world currencies. Historically, the Peso links closely to the price of oil and any past productions increase or decrease altered the strength of the Columbian Peso. The continued development in Colombia also highly contributes to the volatility of the USD/COP exchange rates (Vargas 133).

According to 2017 semi-annual report Colombia Threadneedle Investments (CTI 56) Colombia is the largest economy in the South America to the nations between Venezuela and Chile regarding its nominal Gross Domestic Product. As the emerging market in the year of 2005 Colombia embarked on efforts to bring about recovery efforts at such a time when the world developed were struggling with economic stability (CTI 78). On July 2005, the period deemed to have the lowest exchange for COP against USD had it exchange at 1 COP going at 0.000032 dollars. On the periods between 2005 and 2007, the Colombia_x0092_s government consistently experienced economic struggles (Kamin 246).

To uplift a stagnated ETF in Colombia in between after the millennium there was progress in the emerging markets which highly boosted the Colombian equities. The country also had a 14% year-over-year upward growth in construction and public work spending (CTI 211). This bid had the Colombian Peso, regain its exchange rate back to 0.000034 against USD. However, in 2009 the increased public works led to the increase in the country_x0092_s budget deficit. Despite the heavy debt and an expected further debt growth of 2.7% by the government by the end of 2010, the ETF performed evenly (CTI 300).

Despite the fact that Colombia is having a larger Nominal Gross Domestic Product (GDP), the EFT markets like iShares S & P Latin America 40 Index Fund (ILF), and Emerging Latin America ETF (GML) were yet to post any of their allocations to the Colombia stock market (Kamin 258). However, towards the end of 2010, the GXG (Global X/InterBolsa FTSE Colombia 20 Exchange Trade Fund), sought to bring aboard the mechanisms that would boost the performance of Colombian highly liquid stocks. The GXG forms its operations by market capitalization weighted index, which made the ETFs heavy however it exposed the stock to oil price fluctuations (Vargas 130-131). The exposure of the stock market to oil fluctuation is due to the fact more than 20% of GXG is made up of the state-controlled oil firm.

The trend of the Colombian Peso against the United States dollar and the Exchange Trust Fund has been one of the consistent swings and momentarily stabilities. The lowest USD/COP exchange rate happened in July 2005 going to a rate of 1 COP = 0.000034 USD, that downfall mainly triggered by the fluctuation in the prices of oil and the oil products. The direct and indirect correlation between the Colombian Peso and the oil prices renders the currency highly volatile. However, the regulatory policy and fiscal policies by the Central Bank of Colombia in the year of 2006 ensured the swings of the currency did not go overboard. The EFT in Colombia also received a uniform, though the low-scaled trend in the period between 2005 and 2010. The uniformity in the growth trend of EFT is as a result of the minimal impacts from the volatile Colombian Peso. Despite the fact that the majority of the Latin American EFTs did not make any allocation on the Colombian Stock market throughout the period, the GXG ETF works well in the Colombian stocks.

_x000c_Works Cited

Colombia Threadneedle Investments (CTI). Columbia ETF Trust, Annual Report. Boston, MA: Columbia ETF Trust, 2015 pp. 208-319, Accessed 31 Oct. 2015.

Colombia Threadneedle Investments (CTI). Columbia Variable Portfolio- Seligman Global Technology Fund, Semi-Annual Report. Boston, MA: Columbia ETF Trust, 2017, pp. 46-97, Accessed Jun. 2017.

Kamin, Steven. The Transmission of Monetary Policy in Emerging Market Economies. Basle: Bank for International Settlements, Monetary and Economic Dept, 1998, Accessed Jan. 1998.

Vargas, Hernando H. _x0093_Monetary Policy and the Exchange Rate in Colombia._x0094_ Journal of International Economics, no. 57, 2011 pp. 129-153, Accessed May 2011.

November 23, 2022

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