Vincent Maloba

The impact of fraud in financial markets on the government action Fraud is an illegal or unethical activity intended to result in financial or personal gain. Fraud range from financial loss to declines in orgazational performance, credibility and public confidence. A fraud includes an act of false information which results in injury to another. Fraud in financial market induces investors into making purchase or sale decisions basing on false information hence resulting in losses and violation of law. Therefore fraud is an outright theft from investors at large and the most cause of fraud in the financial market is the desperate financial need. Fraud covers a wide range of illegal activities which involve stock manipulation, deception of investors or manipulation of financial markets. There are different types of fraud: Corporate fraud, internet fraud, microcap fraud, accountant fraud and mutual fund fraud. Corporate fraud it’s an illegal activity carried out by an individual or company done in a dishonest, illegal or unethical manner. Its scheme is marked by complexity and economic impact on business, investors, employees and outside parties. There are different forms of corporate fraud; bribery, financial statement fraud, payroll fraud and billing fraud. Corporate fraud provides benefits and advantages to the perpetrator. Internet fraud involves making use of internet services or software to defraud victims or take advantage of them. Investors consider internet to be a great tool in researching and trading securities and securities are stocks and bonds all with financial investment. The most common fraud involves computer intrusion techniques which involve creating fake or misleading information on a particular stock to run different prices and also conduct unauthorized transfer of funds. Internet fraudsters are everywhere and they are very innovative in in their tricks to cheat people and wipe out their different bank accounts. Microcap fraud is securities fraud involving stocks of “microcap” companies mainly found in US as those with a market capitalization of under $250 million. It .Microcap involve stock which do not meet the requirements to be listed on the stock exchange. Microcap revolves around several types of investor fraud which include; pump and dump scheme, chop stocks and dump and dilute schemes. Pump and dump involve false or misleading statements to hype stocks which are dumped to public at inflated prices and it involves telemarketing and internet fraud. Chop stocks involves purchase of stocks in pennies and sold in dollars hence providing both brokers and stock promoters great profits. Brokers are paid secretly in order to sell such stocks. Dump and dilute schemes issue shares for no reason in order to take investor’s money away. Accountant fraud it is the manipulation of financial statements hence creating a false corporate financial health and it done by overstating its revenue, not recording expenses and misstating assets and liabilities. Signs of accounting fraud include; growing revenues without corresponding growth in the cash flows and consistent sales growth while competitors are struggling. Mutual fund fraud involves brokers placing their own interest ahead of the interests of their clients. It emerges from a broker’s actions to increase their commission s or fees. Its risk depends on what it invests in for instance stocks are riskier than bonds. Mutual funds focus on certain kinds of investments such as emerging markets to help earn a higher return. Financial markets as the name suggests are a type of market that provides an avenue for selling and purchasing of assets for instance bonds, stocks, foreign exchange and derivatives. The government, businesses and investors can go to financial market to raise money to grow and expand their businesses and make more money hence impacting the government and oneself at large. Financial markets play a major role in the economy growth of a nation and they act as an intermediary between savers and investors or they help savers to become great investors. A well-managed and functioning financial market bring borrowers and Leander together, improve risk sharing, there is effective and efficient allocation of resources, providing the right and correct information to different participants in the market and monitoring of the management. There are four financial markets each with different nature and risk for instance they vary in size whereby some are small and others are internationally known such as the New york stock exchange and Nasdaq that trade trillions of dollars on daily basis. Other financial markets include; stock market, bond market, commodities market, and derivatives market. Stock market trades shares of ownership of public companies. Investors make money with stocks when they perform well in the market and the greatest challenge comes in choosing the right stock that will enable investors to earn money. Stock market is critical to economic development as it offers the ability to access capital from the public. Stock market serves different purposes which include provision of capital to fund companies to expand on their businesses and give investors those who purchase stock an opportunity to share profits with public traded companies. The two purposes of the stock market profit investors greatly. The bond market offers opportunity for companies and government to secure money to finance projects or investments and it is greatly known to be debt or credit market. It is inform of bonds whereby investors purchase bonds from a company and the company refunds the amount of bonds in agreed period incurring with an interest. Commodity market involves trading and investing natural commodities such as oil, meat, corn and gold. Market for these products is created because their prices are unpredictable. Commodity market it is physical where one can buy, sells, or trade different commodities at different times and dates. Derivatives market it is a financial security whereby the value is derived on an asset or group of assets. It can also be known to a contract whose value is based on market value of the asset being traded and most common assets are stocks, bonds, commodities, currencies, interest rates and market indexes.  The impact of financial market efficiently direct flow of savings and investment whereby it’s role is in the success and strength of an economy. Large numbers of people entrust their finances to various financial market in order to achieve high returns or gains to their advantage when their day comes for instance retirement. The impacts of fraud in financial market include; putting savings into more productivity, lowering cost of transactions, making financial assets into liquid form, Fair and proper treatment to investors and debtors, Access to capital has become easier, lower the unemployment rate, treatment and determining the price of securities. Putting savings into more productivity is whereby money in a saving account should not just be kept in the account without making use of the money differently for instance when a company or individual needing a personal loan or a business loan hence impacting different financial markets. Financial market also has helped to lower unemployment rate due to increase in many job opportunities. Unemployment affects the disposal income, erodes the purchasing power and above all reduces an economy’s output. If the unemployment rate is high general income becomes limited hence with less cash people spend less money and there is less or no demand for products and therefore stock prices go down because there is no much demand on different goods. Fairness and proper treatment play a key role in the financial market in that both investors and debtor’s regardless of their size they are treated fairly and equally. Transaction cost is the amount incurred by a buyer or seller when purchasing a certain service or product. In order to reduce transaction cost different types of financial intermediaries are used and they help create markets, reduce cost of doing business, taking deposits from savers and lending the money to borrowers, pooling the savings of many and investing in quite a number of stocks,bonds,and making loans to small businesses and consumers. Lowering cost of transaction impact financial market by setting or creating rules and regulations that lower risk and uncertainty because they bring out limit on individual’s freedom. Financial intermediaries include; banks, credit unions, saving banks, building societies, insurance companies, different investment schemes, mutual and savings banks. Access to capital has become easier hence impacting the financial market. Access to capital is the main reason businesses choose to invest from a wide range of funding sources for instance banks and investment firms to help in business innovation and expansion. Capital is the amount of money to run or operate a business for its day to day activity and fund its future growth. There are different types of capital that are accessible which include; debt, equity and trading capital. There are also capital markets whereby savings and investments are channeled between the suppliers who have capital and those who are in need of capital. Capital markets include primary and secondary markets and the most common capital markets are stock and bond market. These markets bring together those who hold capital and those seeking capital together and provide a place of security whereby different entities exchange securities. A capital market is more organized market in which individual and business entities buy and sell debt and equity securities for instance the New York Stock Exchange, American Stock exchange, London Stock and NASDAQ are some of the highly organized capital markets. Capital market is the best channel to move idle savings to the most productive units in the economy. Capital market enhances economic growth through a number of channels such as liquidity, risk diversification, providing information for companies, corporate governance and the mobilization of savings. Capital market is a financial market that allows long term trading of debt hence impacting the financial market. Making financial assets into liquid form whereby an asset owned can be converted into cash while retaining its market value for instance assets considered liquid are; cash, stocks, money market or savings accounts hence impacting the financial market. Anything with a financial value to a business or an individual is considered an asset and can be converted into cash. Liquid assets are readily convertible to cash to pay for any liabilities that are coming due and these assets are funded by both short and long term funds. Liquidity impacts a company because it easily pays off its short term liabilities and debts .Treatment and determining the price of securities help to raise capital in public and private market hence impacting the financial market. There are three types of securities equity, debt, and hybrid. Equity provides right of ownership to holders, debt essentially loans repaid with periodic payments, and hybrids combine debt and equity. Securities make it easy for those without money to find those who need capital for investment, it also makes trading easy and available to many investors, and makes markets efficient and effective. Government action on fraud in the financial market exercise authority and regulatory powers over country’s financial market to reduce or curb fraud. Fraud shifts government funds to different types of deception or schemes hence affecting taxpayers the most. For instance in the US, Securities and Exchange Commission sets rules for the stock market and other investments transactions. Most severe punishments are sought in standard cases when the perpetrator of fraud is caught and civil charged are pursued against the offender. Individuals face years in prison once convicted with fraud along with the possibility of being required to pay high amounts of fines. The government should set rules in different companies and institutions whereby deploy supervise cash collection locations, implement procedures to compiling receipts and ensure deposits are properly reviewed and supported hence curbing fraud. Introduction of new technologies and in particular advanced data analytical can bring real benefits in detecting fraud and identifying clusters of unusual transactions for instance most procurement frauds are conducted over a period of several years and it can be hard for an organization to recover every any losses. In Conclusion fraud continues to be a persistent threat in the public sector and that organizations need to be vigilant and proactive when fighting economic crime. 14 Asset misappropriation, accounting fraud and bribery and corruption remain the top three frauds that are carried out and there are also new types of fraud emerging for instance cybercrime. The risk to government organizations is only going to increase with new technologies and a changing work environment.. In particular, we are seeing large numbers of frauds committed by an organization’s own employees – these are the people that organizations trust, that potentially have access to systems and to significant amounts of data. The changing ways in which governments are doing business also present fraudsters with potential opportunities hence reputation continues to be of paramount concern to public sector organizations .It is vital, therefore, that organizations continue to ensure that they are investing in fraud prevention and detection methods and that senior management is setting a tone from the top that encourages, and rewards, ethical behavior. Fraud in financial market has affected the economic growth at large and at a very high rate.