Discuss how government actions can influence the tasks of the financial manager and explain how these actions can affect the attainment of financial objectives

Advanced Financial Management Block Revision Mock Exams

This is a very wide question and a variety of answers would be acceptable. The following government actions could be included in the answer:

(1) Taxation, both corporate and personal.
Monetary policy, especially credit controls
 Wage controls.
 Dividend controls.
 Profit controls, including price controls.
 Customs duties, tarrifs and other trade barriers.
 Investment incentives, including grants and accelerated allowances.

Schemes for personal savings, including National Savings.
 Government borrowing requirements from the capital market – this may restrict the funds available to other borrowers.
Direct provision of finance to the nationalized sector and other companies considered of national importance (eg, for the creation or maintenance of employment).
 Regional policies, enterprise zones.
 Use of foreign exchange reserves to influence the value of the pound.
Provision of information through many government departments and statistical services.
Health and Safety Acts, environmental controls.
 Monopolies legislation.
 Almost all of the above government activities will directly affect companies and their ability to achieve their chosen financial objectives.
 For example, if maximization of shareholder wealth is desired:
 Taxation affects corporate income, personal disposable income, savings and investment levels, levels of demand, dividend levels and share prices.
 Credit controls affect the cost and availability of funds, the value of shares, profit and dividend levels.
 Exchange rate policies can influence the success of export/import-based firms.
 Many other illustrations are possible.

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