What it means
The forint was introduced in 1946 and is issued by the Magyar Nemzeti Bank, which is Hungary's central bank. Hungary is a member of the European Union but keeps its own currency, so companies operating there deal with both forints and euros.
The three-letter code HUF follows the ISO 4217 standard, which assigns a unique code to each currency. Prices in Hungary are often quoted in large numbers because one forint is worth only a small fraction of a dollar.
A restaurant meal might cost several thousand forints and a house might cost tens of millions. This is normal and does not mean the economy is in trouble, but readers used to smaller numbers need to be careful with decimal places.
The exchange rate floats, which means it moves with supply and demand, interest rate decisions, inflation and investor confidence. Exporters, importers and investors face currency risk, because a rise or fall in the forint changes the value of their earnings when converted.
Firms commonly manage this risk using forward contracts (agreements to exchange currency at a set rate on a future date). For accounting, companies with Hungarian subsidiaries translate forint results into the group reporting currency.
Income statements are usually translated at average rates for the period, and balance sheets at the closing rate, which produces translation differences recorded in equity. These movements can make a profitable subsidiary look weaker or stronger in group accounts without any change in local performance.
Interest rates also matter. Hungary's central bank sets its own policy rate, and changes in that rate can move the forint sharply, as investors seek higher returns or flee risk.
Treasurers watch these announcements closely, especially when large payments are due. Practical issues include bank charges on conversion, the spread between buy and sell rates and the timing of payments.
A finance team should agree which currency invoices are denominated in, and who bears the exchange risk, before signing a contract.
In practice
Real-world examples.
Example
A UK furniture retailer buys chairs from a Hungarian factory and agrees to pay 12,000,000 HUF in 60 days. The finance team buys the forints in advance through a forward contract so it knows the exact cost in its own currency.
Example
A US software company opens an office in Budapest and pays local staff in forints. Its quarterly payroll of 90,000,000 HUF is worth fewer dollars when the forint weakens, which lowers its costs in dollar terms.
Example
A fund manager buys Hungarian government bonds that pay interest in forints. She hedges the currency exposure because a fall in the forint could wipe out the extra yield she expected to earn.
Formula
Calculation
Amount in US dollars = Amount in HUF / Exchange rate (HUF per $1)
Exchange rates change constantly, so this example uses an illustrative rate of 400 HUF per $1 for easy arithmetic. A Hungarian supplier invoices a US customer 2,000,000 HUF, which is 2,000,000 / 400 = $5,000. If the forint weakens to 500 HUF per $1, the same invoice is worth 2,000,000 / 500 = $4,000, a fall of $1,000 or 20% in dollar terms for the Hungarian supplier. If the invoice had been priced at $5,000, the supplier would have received 5,000 x 500 = 2,500,000 HUF, which is 500,000 HUF more than before.Case study
Seen in the real world.
Danube Valley Components is an illustrative, fictional manufacturer based in Hungary that sells 80% of its output to customers in Western Europe and the United States. Its costs, including wages and rent, are paid in forints, but most of its sales are invoiced in euros and dollars.
During a period in which the forint strengthened by 12% against the dollar, the company saw its profit margin shrink. A product that earned the company 1,000,000 HUF at the old rate earned only about 893,000 HUF at the new one, since 1,000,000 / 1.12 is roughly 893,000. The finance director realised the business had been exposed to currency movements without noticing.
In this illustrative story the company began hedging half of its expected dollar revenue 12 months ahead, and it negotiated some supplier contracts in euros to create a natural offset. The lesson is that currency risk is a business issue, not only a treasury issue.
Watch out
Common mistakes.
- Assuming a large forint price is expensive, when the unit is simply worth a small fraction of a dollar.
- Forgetting that the forint is separate from the euro, even though Hungary is in the European Union.
- Quoting a fixed conversion rate in contracts without a date, when rates move every day.
Questions
People also ask.
What is the symbol for the forint?
The code is HUF, and the abbreviation is Ft, which is often written after the amount.
Is the forint pegged to another currency?
No, it floats freely, so its value changes with market conditions.
How do businesses manage forint risk?
They can invoice in their own currency, use forward contracts, match costs and revenues in the same currency, or ask a bank about options.
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