Question

Discuss the reasons for government to get involved in the financial system

Answer 1

Government are getting involved in the financial system because of the following reasons-

A. Government are getting involved because financial system is reflecting the level of savings in the overall economy and it is also reflecting the capital market which is an important measure for controlling of the credit in the economy.

B. Government are also getting involved because the fiscal policy is a supplementary of the monetary policy which is decided by the central bank and hence the government are trying to synchronise the fiscal policy in respect to that of monetary policy

C. Government are also trying to control and regulate the operations of the securities market through its operational body so that it can control the level of monetary flow in the securities market.

D. Government is also using the markets as a method of getting foreign direct investment into the economy and it is trying to control the level of foreign direct investment through appropriate regulations

E. There are various budgetary targets of the Government and there are various public companies which are continuously trading in the stock market which are a representative of a large stake of the government so the government is getting involved in this market.

F. Government is also involved in the financial system in order to control the operation of the bank so that they can control the level of damage in case of adverse economic situations.