Financial Shenanigans: Can Government Regulation Improve Financial Markets?

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Page count 7
Word count 1975
Read time 8 min
Subject Economics
Type Essay
Language 🇺🇸 US


A financial shenanigan is a way of fooling people by the company revenue and the factors that affect it. This is seen as a way of fraud rent behavior that the company uses to manipulate its financial statement by overstating the profits, creating unrealistic cash balance, and understating the liabilities(Cutter Associates Para. 1). This is the work of an auditor or financial analyst to detect any irregularity to avoid such type of market risk.

In real estate it so common where it is experienced through insider trading and this results in negative effects such as the decline of shares a good example is Satyam Company. Financial shenanigans can be informed of recordings unrealistic revenue, shifting expenses to an earlier or later date, eliminating liabilities or failing to record, and many more ways (Wolfson 350). This makes the company profit reflect high profits or low profits.

It can be harmful to the company and the general public as a whole. This can also affect the economic welfare of a country; therefore relevant measures must be taken. The shenanigan may be detected through analysis of financial reports and acquisition of accounting tricks. It is the role of the government to put various measures to ensure that relevant measures are put to detect shenanigans that may affect the economy negatively (Wolfson 355).

Examine the changing pattern of risk allocation leading to the financial crises, look at the incentive created and how it changed accountability

A well-functioning financial system is essential for economic benefit especially improving the living standards. In the policy formulation, the authorities should focus on transparency in the financial dealings through the installation of the regulatory strategies (Wolfson 351). On financial policies non that is perfect to say it can be implemented alone without involving the other and achieve the objective risk management is a major critical area where it concerns both quantitative and qualitative techniques which not only covers one state but global countries as wholes. Some of the policies implemented are the monetary policy were through the financial institutions to regulate the amount of money flows in the market and also the interest rates. Monetarist sees the financial system stability, but to many, the financial system is prone to crises which result in the manner they are implemented or conducted (Wolfson 334).

Monetary and fiscal policies are mainly focused on financial indicators such as interest rates. A good example is in Asia where the monetary policy is trying to keep inflation low. This other hand influenced the savings which affect the economy negatively by resulting in the negative effect of creating a deficit current account. The recent crises clearly show that the financiers are dishonest they are more concerned with their benefit rather than their clients. Though there is various regulation installed in the financial market it has not been in a position to regulate the market well. Some of the measures installed are saving lending and risk hedging (Pierre-Olivier et al. 71).

The margin requirement is the commonly used regulator, the minimum amount that the banks must maintain with the central bank either minimizes the money that the financial institutions have at disposal to lend their customers and vice versa is true. The other commonly used policy is the lender of the last resort, where the financial institutions borrow from the central bank having no other option. This is believed to have worked especially in the post-war times where it prevented financial collapse. However, in trying to avoid the risk it may result in financial crises such as:

Some of the agents involved in the financial system for example in the lender of last resort may result in critical financial crises. The increased cost of being the lender of the last resort hence non is willing to be one, this may result in the collapse of the financial system a good example is in Britain where the US was unwilling to act as lender of last resort hence a collapse of their financial institutions. In the case of the interest rates, they may result in inflation that may affect the company’s economy negatively (Ricardo 390). This among others shows that the risk regulation may contribute to the economy positively and at the same time may lead to economic deterioration.

Information and transparency

In cases involving information and transparency, the organization should ensure that only the required information should be released to the public. Otherwise, if it is meant for the company it should be kept in privacy. In terms of transparency should be encouraged where the prices or the revenue of the company should not be manipulated to be appealing to the public (Doepke and Schneider 330). Rather these two concepts avoid insider trading.

Transparency is a very essential issue, especially in the capital market. Transparency results from policies and practices that channel information (Friedman para.6). This enhances the financial responsibility and prevents fraudulent issues in the company. Various steps are taken to ensure that transparency is maintained such as the signing of international treaties which involves three core requirements: to make information on relevant laws, regulations, and other policies publicly available. To notify interested parties of relevant laws and regulations and changes to them and to ensure that laws and regulations are administered in a uniform, impartial and reasonable manner (Pierre-Olivier et al 101).

Can Government regulation Improve Financial markets and how it has changed

In every way, the government should be keen on the financial market to put the required measures that are meant to keep stability and enhance security in the market. The global market crisis poses questions on various approaches to market regulation. When the financial regulation is left to the financial institutions then they are more concerned with the gain rather than their clients’ welfare (Doepke and Schneider 90). The government needs to take control of the major financial institutions rather than leaving them in the hand of the private sectors to manage them. The problem in the financial system in the United States is not that there is no government intervention (Graeser 43).

The government should take time in the intervention to prevent some measures that may be installed which may lead to collapse. In developing countries, the government venture will greatly help. Since the lending is concentrated on political matters that is the political families rather than the productive people in the country. Therefore the government intervention would improve the access to finance which will be used for productive measures’ hence economic improvement.

Basing our argument in China, where the financial rules have greatly been diversified, great improvements have been noted that are healthy to the country’s economic growth. Currently, it has concentrated on the improvement of a bond issue to control the financial market, where there earlier it was mostly based on the bank loans, this changes the finance structure. The china government provided clarity on risks responsibilities hence the steady development of the bonds market (Friedman para. 6).

This is where it introduced the rules that the investors taking the bond to have a right to the bond and be paid ion time. These rules have helped improve the investors’ confidence when investing in the bond. It has also fostered the involvement of intermediaries and improves market supervision (Graeser 65). The government ensured that the right price is charged and that there is room for negotiations. In involvement of intermediaries, it ensured convenience in availing the chance of in investing in the bond to every investor. The intermediaries that are involved should enhance the bond market development.

In a comparison of when the financial management was left in the hands of financial institutions and when is in the hands of the government, there has been a great difference. That includes improvement in risk allocation where the government introduces the rules to manage the market risks. The investor’s trust has improved than earlier since their needs are considered. There before the financial institutions were only interested in their benefits, rather than that of their clients. The loans are availed to everyone whether a politician or not (Ricardo 379). This ensures that the productive public can access credit under reasonable terms.

Improvement of the financial systems

However, the financial system needs to be improved to enhance better performance. Certain issues must be put in mind. Reforming the system of financial regulations will be at the top of the agenda for policymakers in developed countries.

The largest economies may sometimes be eliminated in the formulation of market regulation. Their economies are well established and the design they use to regulate the financial market may differ from that of a developing country. Although global economic policies should be formulated in a way that will be fair to all whether large or small. A well-functioning global financial system is also important in a developing country (Friedman para.8). The first part the government should concentrate more on is credibility, which is very effective this enhances the trust of the investors.

The government should also improve on the economic policies these policies ensure that the economy is secured from the various uncertainties. Also, it will ensure that the interest rates are improved to ensure that they are not exposed to inflation cases that will affect their investments. The financial measures should also ensure that they create room for innovation (Graeser 54). Avoiding various financial crises will ensure that will improve the growth rate hence increased development. They should increase the number of financial intermediaries that will promote a fair financial sector that is under-regulated rules.

This will ensure that the financial institutions don’t put their interest in the financial dealing but they should also be concerned with the welfare of the investor (Ricardo 360). This will encourage investment since the investor’s trust will improve. Therefore with better rules to regulate the market will ensure that the objectives of the financial market are improved. Information integrity and transparency should also be emphasized. This avoids various risks such as insider trading which may result in an economic downturn affecting the countries productivity adversely.


A financial shenanigan may cause economic downturns in the economy, through revenue and price manipulation. This is seen as a way of fraud rent behavior that the company uses to manipulate its financial statement by overstating the profits, creating unrealistic cash balance, and understating the liabilities. In light of this, good governance of an organization should be geared towards implementing the most relevant control measures on issues relating to risk management.

Though it may involve the extra cost of establishing the cost including the time it will be better-prevented tan to deal with it when it has already occurred. The relevant mechanism should be used to correspond with different risks such as operation, market risk, and others to ensure that they are avoided and if in any case, they occur. The issues of risk management should be assigned to the regulating bodies to ensure that evaluating, monitoring, and the system will manage to regulate the risk in case of occurrence. The most appropriate policies to be used is the fiscal and monetary policies this will help regulate the various variable in the financial market (Pierre-Olivier et al 9).

This will enhance a stable market that stands to be attractive to the investors hence increased productivity. The financial systems will be well monitored to ensure that the fraudulent acts are minimized, hence gain in credibility from the general public even the foreign investors. The capital market constitutes an important part of the financial market. If not well monitored it may result in economic imbalances which may bring more harm than good to the prevailing economic conditions. The various securities traded in the capital market should be well monitored therefore posing a great challenge to the policymakers. All policies should be to bring development to the overall market (Ricardo 385).

Works Cited

Charlese Abbor and Rachelle Younglai. “Market regulator argues tough enforcement”. International Business times, 2009.

Cutter Associates.” Riding a tiger; where risk becomes reality”. 7 (64), 2009. Web.

Doepke, Matthias and Schneider, Martin. “Inflation and the Redistribution of Nominal Wealth.”Journal of Political Economy. 2006.

Edward, L. Graeser. “Failure of regulation not capitalism.” Economix. 2001

Friedman, King. “Monetary policy practitioners: the communication of policymakers intentions with a view to enhancing their credibility.” New York: Pitman Inc. 2000. Web.

Pierre-Olivier, Gourinchas, Farhi, Emmanuel and Caballero, Ricardo. “An equilibrium model of global imbalances and low interest rates.” American Economic Review.98(1) , 358-393. Massacheussetts: MIT Press. 2008.

Ricardo, Caballero. “Causes and Risk Management. An Equilibrium Model of ‘Global Imbalances’ and Low Interest Rates.” Journal of Monetary Economics.98(1) 358-393. 2008.

Wolfson, Martin. “The Causes of Financial Instability.” Journal of Post Keynesian Economics.12(1). 1990.

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EduRaven. (2022, January 1). Financial Shenanigans: Can Government Regulation Improve Financial Markets? Retrieved from


EduRaven. (2022, January 1). Financial Shenanigans: Can Government Regulation Improve Financial Markets?

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"Financial Shenanigans: Can Government Regulation Improve Financial Markets?" EduRaven, 1 Jan. 2022,


EduRaven. (2022) 'Financial Shenanigans: Can Government Regulation Improve Financial Markets'. 1 January.


EduRaven. 2022. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.

1. EduRaven. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.


EduRaven. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.


EduRaven. 2022. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.

1. EduRaven. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.


EduRaven. "Financial Shenanigans: Can Government Regulation Improve Financial Markets?" January 1, 2022.