Finance project 2 Essay Example | Topics and Well Written Essays - 1000 words

Finance project 2 - Essay ExampleThis means that the products produced within Hungary are sold to other countries in fewer quantities and monetary amounts than the products purchased from those nations. Since every(prenominal) the transactions are carried out in US Dollar, this trade deficit would gain pressure over countrys foreign reserves and so demand from importers (for dollar) will surge and would possibly result in get downing the monetary value of Hungary currency. Perhaps, the most important factor that could result in increase trade deficit is reversal of international oil and commodity prices because today international economies are coming out of recession and are demanding more oil, pabulum and other commodities to fulfill their domestic needs and oil requirements. Oil prices have already recovered to a level of 75-80$ per barrel and are expected to increase further in near future in the wake of better economic outlook and forecasts. This would put great pressure ov er Hungarian governance because it would increase the trade deficit and further deteriorate HUF-Dollar parity.The dollar-HUF disparity (at present the switch over rate is 170 HUF per dollar) is perhaps a major reason of swelling (higher prices) which currently stands at 3% and could increase in near future amid higher international prices of various products. The rule is simple and clear the higher the exchange rate, the more expensive the imports and prices will observe an upward trend in domestics for these imported products thereby causing inflation. Moreover, the rise in prices will also lower down the purchasing power of people in Hungary therefore, would result in greater unrest and lower economic growth. People are bound to recognize down their expenses to improve their savings. On the flip side, the weakening of US Dollar against international currencies such as Euro, Pound, Japanese Yen etc because of USAs heave trade deficit and various internal factors might not aggr avate the exchange rate in Hungary and could therefore