How Fiscal and Monetary Policy Shape Forex and Stock's Market
Think of a country as a large corporation, with its fiscal policies acting as its budget and monetary policy determined by the company’s financial strategy of controlling interest rates and the money supply. Therefore, both will have direct effects on the company's stock price, i.e. the entire financial market. Governmental spending fuels growth in GDP. Interest rates set by a central bank determine the cost of borrowing money. Fiscal and monetary policies create the basis of how investors value currencies and equities. Both government and central bank policies drive a shift in capital flows when either the government increases its spending or when the central bank lowers interest rates. This has an immediate effect on the prices of assets, movement in markets and in both financial and commodity markets. What Is Fiscal Policy and How Does It Move Markets? Governments utilize fiscal policy in the economy by the means of spending and taxing to control and influence econo...