The government is a tremendously influential body in both the country as well as the financial world. The rules, regulations, and policies put forward by the government affect the overall working of the country and its economy. They also have a direct impact on all the financial speculations. The financial decisions taken by the government affects not only the business firms and companies but also individuals and startups. The government from any country has a significant contribution in regulating many influencing factors like the central bank operations, tax, accounting practices and many more.

Effects on central banks

Most of the central banks, like the Federal Banks in the United States, are responsible for controlling the money and setting the base interest rates for the country. Interest rate is the rate at which people can borrow money from the bank. It also acts like a for setting interest rates on all other banks. The financial decisions taken by these banks are directly responsible for the economy of the country, obligated by the government. In case there is a sudden rise or fall of the decisions from the Federal bank, then the economy of the country changes accordingly. For examples, a higher rate of interest lower the country’s economy and a lower rate acts the opposite.

Effects on central banks

Tax policies

The government and tax policies are directly related to the finances of a business, which is in turn connected to the economy of the county. Tax policies often have a record of the financial statements and expenditure of a country which is submitted to the tax department of the country. Depending on the result from the tax departments and the government, necessary steps are taken for tax rates which also encourage people to invest more in the business or the company.

Oversight on financial markets

Government of any country generally has all the authorities and exercise rights on all the financial demands of a nation. For example, the rules for the stock market and other authorities are set by the SE Commission and the Financial Conduct Authority in the United Kingdom.

This body always strives to ensure that the financial statements, structure and trading is fair in the county and aims at protecting the investors from making bad decisions and fraud. There are a set of rules and regulations that are responsible for controlling the operations of financial institution and dictates what the banks can and cannot do.

financial markets


It is clear from this article that the government has a full hold and control on all the financial institutions and firms in the country, which affects both the business and individual firms. Through setting laws, regulations, policies, tariffs, central bank activities and many more, the government usually keeps a check on all the business activist and the way they work. For the very same reason, it is imperative or all the business or financial analysts to keep a check on all the ever-updating rule and regulations of the government, which generally has significant effects on the financial projections and models.