One Jamaican dollar is equal to $0.0064 United States dollar. The Bank of Jamaica has made efforts to maintain annual inflation to stabilize prices. Consequently, the inflation rate has been implemented to keep the Bank of Jamaica’s anti-inflationary policy. The anti-inflationary policy has not been created in the balance of payments for external equilibrium. (Craigwell & Ramjeesingh 2011). A floating exchange rate regime decides the country’s exchange rate. However, the Bank of Jamaica controls the foreign exchange market to prevent the movement of currency that can affect the stability of prices. The foreign exchange market in Jamaica is liberalized because there are no exchange controls. Therefore, the government manages the exchange rate in Jamaica and is prone to strengths and weaknesses, which benefits multinational corporations.
Management of Exchange Rate Policy in Jamaica by the Government
In 1992, the exchange rate policy in Jamaica was repealed hence creating measures that included the licensing of foreign exchange dealers and transactions regulations (Craigwell & Ramjeesingh 2011). Thus, creating three bodies to manage the Jamaican foreign exchange market. The three bodies are foreign exchange dealers, cam bios, and bureau de changes. Jamaica’s foreign currency is accessed only through foreign exchange dealers, cam bios, and bureau de changes at rates determined by the market (International Trade Administration, 2021). Foreign exchange dealers in Jamaica are commercial banks, merchant banks, and transaction corporations linked to merchant banks. The role of foreign exchange banks is buying and selling. In addition, their duty also includes collecting deposits and loans. Cam bios in Jamaica purchase and trade foreign exchange. Bureau de change control transactions in the hotel sector (Craigwell & Ramjeesingh 2011). They exchange currency for customers in the hospitality sector, in particular hotels.
Strengths and Weaknesses of Jamaican Government Policies
Jamaica’s foreign market is determined by a floating exchange rate regime which the government controls. The floating exchange rate policy is exposed to strengths and weaknesses. The strengths of a floating exchange rate are specific exchange rates from the market, high market efficiency, and protection from inflation-related to import. Typical exchange rates allow floating currencies to be traded in the market without further interference from governments and central banks (Admiral Markets, 2021). Floating exchange rates boost a country’s economy and domestic production because it makes investments between countries flexible and attractive. Floating exchange rates protect a country from inflation, unlike fixed exchange rates which expose a country to import inflation through a surplus of the balance of payments.
The weaknesses of a floating exchange rate are volatility, lack of investment, and limited growth of a country’s economy. Floating currencies fluctuate and cannot be predicted by default (Admiral Markets, 2021). A money can decline in value against another currency on a particular day in the trading market. Uncertainty of floating currencies discourages foreign investments by international companies. The floating exchange rate is not strictly controlled and regulated by the government. Thus, restricting a country’s economic growth and recovery. Therefore, the floating exchange rate policy in Jamaica affects the country’s international trade and economic growth because it has weaknesses that can have a long-term impact on the country.
Multinational Corporation that will Benefit from Floating Exchange Rate
Herschel Supply company will benefit from Jamaica’s floating exchange rate. The company is a Canadian company that sells fashion attire across the globe (Murray, 2021). The company will benefit from Jamaica’s floating exchange rate because it is familiar with the system since Canada uses a floating exchange rate. Moreover, foreign exchange rates between Jamaica and Canada will be unrestricted because the two countries’ currencies will be traded without any form of restrictions. Governments and banks do not embark on a continuous management process (CFI, 2022). Hence, allowing Herschel company to benefit from Jamaica’s floating exchange policy.
The bureau de change manages the floating exchange rate in Jamaica, foreign exchange dealers, and cam bios. The floating exchange rate is meant to keep prices stable and tame inflation in Jamaica. However, the policy or system has strengths and weaknesses that can impact the country’s growth and international trade. The strengths include specific exchange rates from the market, high market efficiency, and protection from inflation-related to imports. The weaknesses of the floating exchange rates are volatility, limited economic growth of a country and lack of investment. A multinational corporation that will benefit from Jamaica’s floating exchange rate is Herschel Supply from Canada because Canada uses a floating exchange rate and is familiar with the system.
Admiral Markets. (2021). Floating Exchange Rates-The Pros and Cons. Retrieved from https://admiralmarkets.com/education/articles/forex-basics/floating-exchange-rate
CFI. (2022). What is Floating Exchange Rate? Floating Exchange Rate? Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/economics/floating-exchange-rate/
Craigwell, R., Wright, A. S., & RamjeeSingh, D. (2011). Exchange rate determination in Jamaica: A market microstructures and macroeconomic fundamentals approach. Business, Finance & Economics in Emerging Economies, 6(1), 30-61.
International Trade Administration. (2021). Trade Financing. Jamaica Country Commercial Guide. Retrieved from https://www.trade.gov/country-commercial-guides/jamaica-trade-financing
Murray, D. (2021). 20 Companies You Didn’t Realize Were Canadian. Slice. Retrieved from https://www.slice.ca/companies-you-did-not-realize-were-canadian/