Reference no: EM133115941

BOJ Institutes Foreign Exchange Swap Arrangement. (Gleaner Article January 24, 2020)

"The Bank of Jamaica, BOJ, has introduced a new instrument available to foreign exchange authorised dealers called a FX swap arrangement to enhance the central bank's management of the market.

The instrument came into effect on Wednesday and is intended to provide US dollar liquidity to the market through authorised dealers which are deposit-taking institutions via a swap arrangement.

Under the arrangement, the BOJ said it will sell US dollars to authorised dealers within a predetermined limit at the prevailing market rate, with an agreement to buy back the same amount at a time in the future and at an agreed forward rate.

In addition to the BOJ's Foreign Exchange Intervention and Trading Tool operations, the central bank said it will utilise the FX swap arrangement to smooth out excess volatility and restore orderly conditions in the market.

Senior Deputy Governor of the BOJ, John Robinson, told the Financial Gleaner that "it's an arrangement that can facilitate the introduction of more liquidity in the FX market at a point when it is tight, and gives the participants, whoever wants to apply the opportunity to get access to liquidity today which can be repaid at some point in the future. It is negotiable at a standard rate, a rate that the parties can agree on."

Critically discuss and evaluate the benifits of this system to a Jamaican business operating as a MNC.