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Introduction to Financial Markets Essay

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Updated: Jul 19th, 2019

Tax evasion refers to the process of exploiting the tax regime by reducing the amount of payable tax. Some of the techniques used by individuals to avoid paying taxes include the establishment of business enterprises in distant locations where various tax regimes do not apply and also deducting the due taxes.

Under tax evasion, the taxpayer conceals or misrepresents his or her true state with the aim of reducing or lowering tax liability. This habit may lower the amount of revenue collected by governments through taxation. In such cases, some taxpayers often opt using other unacceptable methods of avoiding paying taxes such as poor declaration of profits, income, or increasing total deductions incurred from gross revenue (Murray, 2013).

In most cases, tax avoidance is regarded as a deliberate attempt by an individual to dodge his or her duties or means of avoiding to support government activities. This is based on the fact that several government activities are financed from the revenue collected through taxes.

Failing to pay taxes reduces the amount of available financial resources that the government can use in financing development projects. It is important to understand that most countries (such as Switzerland) are against tax evasion, and have employed strict measures to business entities or individuals who try to evade paying taxes. In countries such as the United States, tax evaders rely on the novel legal theories to evade payment of taxes.

Manipulation of interest refers to a process whereby the Reserve Bank reduces the Official Cash Rate to make it attractive for banks to borrow money at the set interest rates. Banks can then lend that money by way of loans or mortgages. Manipulation of interest rate is carried out by major corporations as well as sovereign governments.

The main reason why a government may engage in interest manipulation is to manage its debts especially in periods when a country’s economy is not performing well. In order to manage debts, the Reserve Bank raises the level of interest rates so as to slow down or discourage borrowing. It is illegal for countries to manipulate the rate of exchange without adhering to the various rules and regulations set by the international organizations such as the International Monetary Fund (Staiger, 2008).

Currency (foreign exchange rates) manipulation refers to a process whereby a country or business entity decides to make an intervention within the foreign exchange markets for a very long duration using a specific currency. Manipulation of foreign exchange rates is not similar to the normal exchange rate fluctuations that usually takes place in foreign exchange markets.

This is because manipulation of exchange rate is perpetrated by a given country or state in order to interfere with the existing rate of exchange. There are quite a number of countries that usually engage in this act as a way of gaining competitive advantage over other nations. It is worth to mention that the International Monetary Fund (IMF) is very strict to countries that may desire to manipulate the rates of exchange. It does not permit such type of manipulations because they result into unfair competition between different countries.

IMF has made tremendous efforts in dealing with this practice and has also managed to identify countries that are victims of currency manipulation. Japan and China have been identified as countries that mostly engage in currency manipulation bearing in mind that the two countries have a lot of foreign exchange reserves compared to their total imports (O’Toole, 2012).

References

Murray, J. (2013). Web.

O’Toole, J. (2012). . Web.

Staiger, R.W. (2008). . Web.

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IvyPanda. 2019. "Introduction to Financial Markets." July 19, 2019. https://ivypanda.com/essays/introduction-to-financial-markets-3/.

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IvyPanda. (2019) 'Introduction to Financial Markets'. 19 July.

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