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CA Final · Advanced Financial Management · Financial Policy and Corporate Strategy

Which of the following best describes the role of the financial policy within the strategic decision-making framework of a company?

Financial policy lays down guidelines for raising, allocating and using funds so that financial decisions on investment, financing and dividends support the overall corporate strategy. It is a strategic framework, not a daily collection routine, an audit programme or a mechanism for fixing share prices.

  1. AIt sets the guidelines for procuring, allocating and using funds so that they support the overall corporate strategyCorrect
  2. BIt prescribes the daily cash-collection routines of the accounts receivable team
  3. CIt determines the statutory audit programme for the financial year
  4. DIt fixes the market price at which the company's shares will be traded

Explanation

Financial policy provides the framework for sourcing and deploying funds consistent with corporate strategy and objectives. The other options describe operational routines, audit planning or market outcomes, none of which is the policy's purpose.

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