Bilateral Trade Agreement - Essay Example

Therefore, any recessionary activity would have a great impact on Hong Kong's trade activity and its exports particularly. b) The Hong Kong currency has been pegged to the United States dollar in the year 1939 and since then the currency has been pegged in this manner.

It was done so in order to maintain a policy-defined relationship between the domestic currency and the foreign currency. However, the current recession has affected the Hong Kong currency in a deep manner due to this pegged currency as the country has had to sell a total of 7.8 billion Hong Kong dollars in order to maintain the peg. As a result, the monetary authorities have been seeking ways in order to remove this pegged relationship as it has been undermining the domestic currency. Even the recent rise in Hong Kong's dollar has been due to the speculators betting on the revaluation.

The Hong Kong government has had to intervene quite a lot in the recent past in order to maintain the peg by injecting huge amounts of the Hong Kong dollar. The pressure has been felt by the local economy in terms of local inflation and asset inflation which has created problems for the domestic economy. Therefore, the constant maintenance of the pegged rate is only worsening the situation for the domestic economy and hence, it would be beneficial to remove this method of maintaining a relationship between two nations. c) There are a number of measures that would have to be adopted by Vietnam in the near future for the betterment of its economy.

It needs to control the inflation level while at the same time tackling the downward pressure on the currency. The GDP forecasted is amounted to be 6.9 percent which is actually down from the previous value of 7.3 percent of last year. The reasons for this have been the smaller levels of credit expansion and the lower level of consumption growth. Inflation is estimated to be around 23.3 percent while the dong is expected to depreciate slightly in 2008. The current account deficit will be expected to remain negative as well which shows an overall bleak picture of the forecasted economy.