A Theoretical Role for Government in the Financial Markets
22 Pages Posted: 2 Mar 2010 Last revised: 8 Mar 2010
Date Written: March 1, 2010
A theoretical role for the government in the financial markets consists of: regulation (passive rules), intervention (active discretion), and their personal financing needs. Three of the most important regulatory rules for maintaining a stable economy are: a clear understanding of the fundamental role of the financial intermediary (saving, lending, and risk hedging), the use of interest rate caps, and implementation of an effective profit allocation scheme. To measure the personal use of the financial markets by governments, their presence on foreign exchanges is examined to note discrepancies from the theoretical norm. A government listing guide is provided that details the listing preferences of foreign governments onto stock exchanges. The preferred foreign exchanges for governments are: Frankfurt, Luxembourg, London, and Switzerland.
Keywords: Government, Regulation, Intervention, Stock Markets, Financial Markets, Interest Rate Caps, Profit Allocation Scheme
JEL Classification: E61, H11, H32, L51
Suggested Citation: Suggested Citation