The means by which a government controls its spending to monitor or influence the economy is called the fiscal policy. It is a strategy adopted along with the monetary policy which controls the money supply through the central bank. Fiscal policy is based on Keynesian Economics and theories which states that governments can control economic productivity by keeping tabs on taxes and public spending. This process automatically curbs inflation levels in turn maintaining value of money and generating employment opportunities. The role of the governments economists is therefore not limited only to implement these theories but to find the fine balance at which they would yield best results in the given economic scenario. For example if the money supply increases, it will increase demand, resulting in devaluation of money. This means a citizen has to pay more money for a good which has not really changed its worth or value. This balancing act is very crucial to any economy strong or weak, to maintain a consistent growth rate. Reducing taxation is a method a government can effectively use to pump its economy. This would result in lesser liabilities and more money inducing spending. Spending in turn increases demand and the economy gets moving again. Exchange rates in the Forex market are very sensitive to government policies and announcements especially in regard to their economies. These announcements and reports have to be interpreted correctly in order to have a correct and decisive future outlook towards currencies. All information pertaining to these reports have to be assimilated in an organized manner to reach a practical and logical buy/sell decision. The index of the economic factors effect the floating exchange rate of currency, coupling this with foreign trade volumes, will further strengthen currency values in the Forex market. These indicators or steps taken by any government will give a Forex trader an insight into the future trends of the countrys currency, where it would help him in making a decision of buying or selling as per his needs and decisive powers. |
