According to Derry Gadson Elkhart, a finance policy is a strategy of allocating finances to accomplish a specified purpose or to reach a specific goal. Conservative financing, as the name suggests, concentrates on long-term sources of money while utilizing less short-term finance. It is a means of financing current and permanent assets, with a portion of the money borrowed from short-term sources going toward long-term aims. The following are some examples of financial policies: An efficient finance policy should include the processes for approving new suppliers and establishing procedures for new consumers. Financial policies should ensure that the business's funds are enough to support the costs, in addition to defining procedures on how to manage money. Accounting best practices must be followed at all times. Financial policies, like every other aspect of a firm, should be examined and changed on a regular basis. Financial professionals should be engaged if the scenario is complicated in order to design an effective approach.
Financial policies should be evaluated on a regular basis to ensure that they fit current demands as well as corporate goals. During the yearly budget process, an impartial organization should perform a comprehensive policy assessment. It should also reflect future objectives and requirements. Then, all parties must agree on it. To give the best possible service to the organization, a complete policy may be required. However, there is no such thing as a one-size-fits-all financial policy. If you want to develop a financial policy for your organization, it is critical that you follow the procedures indicated above to ensure that it satisfies all of your requirements.
An NGO's financial policy should be created to maintain a balance between revenue and costs. In other words, the finance system should increase the transparency and accountability of the NGO to its stakeholders. It should also establish the methods for financial data dissemination and reporting. The finance policy should also detail all of the NGO's activities. The information should be up to date and correct. There should be no mysteries here, and the financial policies should reflect this.
The Federal Reserve Board's founding papers stated that the Fed's purpose was to promote liquidity in the financial system. However, this did not prevent the banks from failing. The role of the RFC was to provide loans to weak banks that were senior to their deposits. However, these loans were not intended to assist banks in avoiding collapse. Instead, they exacerbated the situation for the institutions that received them. Furthermore, these loans increased the risk of deposits and offered a new incentive for deposit withdrawal.
Derry Gadson Elkhart pointed out that, some organizations do not have a finance policy, despite the fact that many do. Small NGOs sometimes ignore the importance of having one. A written financial policy defines the board's power, functions, and obligations. A clear financial record is unlikely if the board has a policy. Even organizations with consistent financial flow may encounter bad cash flow and deficits from time to time. Having a sound policy is critical because funders and grant makers will search for organizations that are fiscally prudent.
The global economic crisis started in 2007 with the collapse of the mortgage market. The ensuing worldwide crisis has ramifications for economies all around the globe, affecting private spending, international commerce, and production. To regulate the economy in the aftermath of the crisis, governments adopted a mix of fiscal stimulus and automatic stabilizers. Automatic stabilizers are intended to intervene when tax revenues fluctuate. Fiscal stabilizers, on the other hand, work in connection to the economic cycle.
The Undistributed Profits Tax is one example of a successful financial policy implementation. The Roosevelt government established this in 1936 and repealed it in 1938. As a consequence of the levy, businesses increased their debt levels in order to decrease their taxes. This phenomena has a long-term influence on enterprises' financial health, and Blanchard et al. (1996) and Frank and Goyal (2004) investigated the effects of different financial policies on debt ratios in firms.
Derry Gadson Elkhart's opinion, the multiplier's magnitude is determined by the government's fiscal space, or its capacity to reorganize spending. While some governments reaped the benefits of the stimulus, others were unable to do so. Potential creditors were concerned that further expenditure would cause inflation, delaying recovery and squeezing out the private sector. As a result, fiscal policy should be focused, timely, and transitory in order to accomplish the intended result. The more effective and long-lasting the stimulus measures, the better for the economy.