Jamaican dollar hits new low, surges past $133 against the US$ (Extract from Loop News: July 24, 2018)

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The Jamaican dollar lost 42 centson Monday against its US counterpart to hit a new low, according to the trading summary from the Bank of Jamaica (BOJ).

It closed at $133.38 against the US greenback, from $132.96 on the prior trading day. The Jamaican dollar has depreciated by nearly seven per cent since the start of the year, a trend that has triggered concerns among some businesses. Last month, the opposition People's National Party accusedthe government ofdeliberately pushing down the valueof the Jamaican dollar. Opposition spokesman on Finance, Mark Goldingcharged that "consumers, already hurt by rising electricity and gas prices, can brace for a further battering from unwanted price increases driven by the falling Jamaican dollar that the government seems to be pursuing as a matter of unannounced policy."

a. Briefly explain the fixed and variable exchange rate system and identify the system currently being used in Jamaica.

b. Using a minimum of THREE (3) points explain which exchange rate you think is best suited for the Jamaican economy and why.

c. Explain how currency depreciation might affect the country's balance of payments.