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Literature Review About Strategic Financial Management

Financial strategy is mainly focused on the financial aspects of strategic decisions. Of course, that means communication with the interests of shareholders and capital markets are so loose. However, a sound financial strategy and competitive strategy as the best company, the business must take into account all internal and external stakeholders.

Capital market theory and research are mainly related to macro-economic level, financial strategy to meet the needs of specific individual company, and in some cases, even divisions within the company.

Following are the main components of the financial strategy: (Ruth Bender and Keith Ward (2009))

Raising the funds needed by an organisation in the most appropriate manner.

Managing the employment of those funds within the organisation.

The financial strategy is one of the main goals of value that always try to reduce cost scan not be achieved should be added. If memory is a key challenge for commercial organizations to develop sustainable competitive advantage, more than acceptable, the main stakeholders, rationally judge the success of the financial strategy, risk-adjusted returns has links is a contribution to the overall goal.

Literature Review

UK banking sector has traditionally been very fragmented. There are over 450institutions, of which seven volumes are assigned to one of their brilliant work. Money market analysis and statistics, financial stability and banking services, with the support of a central service area - working towards their initial objectives, the Bank is carried out in four key operational areas. This structure was introduced in June 1998 to act in the Bank of England in 1998, new responsibilities reflect the bank. Centre for Central Banking Studies, teaching and provide technical support to other central banks. (

An Over View Of Financial Market

The sympathetic role in the financial system of banks that participate in the recreation area of theoretical economics and finance are among the main issues. Process all the way through which channels savings of creative activity and general well-being is fundamental to improving development effectiveness. Banks are part of the process.

Figure 1:

Source: The Roles of Banks in Financial Systems (PDF)

Figure 1 shows an overview of the financial system. Money lenders are mostly for families and companies. These lenders, borrowers end, most companies, governments and funds for families in two ways, contributed to conservation. the first financial market, stock market, bond market and currency market includes more. Other banks and other financial institutions such as mutual funds, money market funds, pension funds and insurance companies has ended. Although the trend of globalization in the current year, a diversified economy, the importance of banks differ in the details.

Banks are fascinating and the financial system and economy in mostly inactive. Firstly, they end between investors and borrowers and depositors funds to ensure proper use of information for monitoring the problem resurface. Second, they can not risk a variety of smoothing temporary differences at any time, as well as insurance against unexpected expenses injury fund investors. The development gap between assets and liabilities, on the other hand, bank runs and systemic risk is a question on this occasion. Thirdly, banks contribute to the development of the financial system and economy. Fourth, they suggest an important role in corporate governance. Banks in many roles a virtual importance varies considerably across countries and time, but persistent financial system and economy are important for banks.

Banking Sector before Credit Crunch

Major UK banks UK households relying mainly on residential property are protected. In late March 2006, mortgage lending in UK homes, the major UK banks accounted for 87% of the shares. UK banks to write off mortgage interest rates on loans is much lower than on unsecured lending to very low levels of 2005, during the first half of 2005 and 2004 the annual growth rate of the mortgage pioneer slow during the fourth quarter. Bunny (figure 2.2), mortgage rates fell by 8% in the year to April 2006 (figure 2.3). Some lenders will connect with the market to value ratio is specified for your maximum loan there, but the new lender is still low at the beginning of 1990 the average ratio. And the UK mortgage market has grown rapidly in recent years, UK banks in the region are vulnerable to small (Financial Stability Report, 2006).

Highly leveraged companies believe that the major UK banks is growing due to take an overview of the cooperative sector, the main cause of UK bank debt markets over the bank from the market and has been subjected to increased liquidity risk has increased. Contribution to the revenue benefits it is constantly growing and now stands at about 6% (Financial Stability Report, 2006).

It is evident that within three years, UK banks participating in the syndicate shipments increased activity (Figure 2.6). UK banks in the form of loans, especially in terms of value for the 205 worked arranger and 2005, 9,2% of total assets of UK banks was the same. Although it is difficult to assess the risk of capital depending on the extent to which there are sales to avoid risks for banks in general. Leveraged loans syndicated loan borrowers, which is characteristic of a broad and sub-investment position to take these loans is primarily due to the high level of capital allows a certain type. Chart 2.6 shows leveraged business loan, which includes the major UK banks leveraged buyout (LBO), associated with the most (Financial Stability Report, 2006).

UK Economy

British economy, the most globalized economies in the world (or global), one of the City of London, the world is considered the largest financial center in no small measure due. The economy of the United Kingdom of England, Scotland, Wales and Northern Ireland, including the economy. Isle of Man and Channel Islands are part of the British Isles and offshore bank rating.

Bank of England cut interest rates to 1.0 percent by the end of 2008 and throughout most of 2009 and 2010 the proportion is expected to drop to 0.5. UK budget deficit of GDP in 2008 was 5.3 percent. From an economic bailout package of incentives and the bank is currently working, a percentage of GDP in 2009 and 13 in 2010 to 11.3 percent of GDP, is expected to balloon. In 2008, 43 in the UK th largest with respect to national public debt was 47.2 per cent of GDP. This figure is a percentage of GDP from 58.5 in 2009 and 70 percent of gross domestic product could grow in 2010 due to the projected 2009-2010 budget deficit.

Inflation was increased to 3.6 percent in 2008, but fell back with the economic crisis in 2009 and 0.4 percent in 2010 and 0.8 percent expected. 58-I at the end of 2008, inflation was the lowest in the world. 3 month Treasury rates fell from 5.5 Similarly, the percentage in 2008 to an expected 1.3 percent in 2009 and 2010 were. The unemployment rate reached 6.3 percent in the UK by the end of 2008, according to the Office for National Statistics, nearly two million unemployed reached. This figure will grow to 2.5 million - three million people, or 8-10 percent.

Great Britain in third place in the world of U.S. current account deficit in the $ 186 billion. The manufacturing sector has a large trade deficit and energy extraction down the North Sea has become a net importer. This world export 468.7 billion dollars (9 world ranking of exports) and imports of $ 654.7 billion working. In 2007, foreign direct investment (FDI) (although the figure has since been removed), the largest recipient, and the most competitive in Europe for business and tax was one.

UK Banking System:

Monetary market analysis and statistics, financial stability and banking services, with support from the central service area - the main purpose of the operation, the bank consists of four main operational areas. This structure was introduced in June 1998, the Bank of England in 1998 to act in new responsibilities, the Bank of gloss. Centre for Central Banking Studies, aimed at other central banks and provides technical support.

The sympathetic role in the financial system of banks that participate in the recreation area of theoretical economics and finance are among the main issues. Process all the way through which channels savings of creative activity and general well-being is fundamental to improving development effectiveness. Banks are part of the process. Figure 1 shows an overview of the financial system. Money lenders are mostly for families and companies. These lenders, borrowers end, most companies, governments and funds for families in two ways, contributed to conservation. The first financial market, stock market, bond market and currency market includes more. Other banks and other financial institutions such as mutual funds, money market funds, pension funds and insurance companies has ended.

Banks with an overview of the financial system and economy in the world of work. Firstly, they end between investors and borrowers and depositors funds to ensure proper use of information for monitoring the problem resurface. Second, they can not risk a variety of smoothing temporary differences at any time, as well as insurance against unexpected expenses injury fund investors. The development gap between assets and liabilities, on the other hand, bank runs and systemic risk is a question on this occasion. Thirdly, banks contribute to the development of the financial system and economy. Fourth, they suggest an important role in corporate governance. Banks in many roles a virtual importance varies considerably across countries and time, but persistent financial system and economy are important for banks.

After Credit Crunch

Banking has long had a difficult time. In 2008, the money carousel stopped, confidence fell off a cliff, and governments and regulators around the world banker - has become commonplace of political and media debates in the attacks was forced to move, the bank looks at public trust in all this is very low. Trade Secretary Vince Cable as "stripes Scar gills" bankers have been described.

Some reality has changed. Massive expansion of bank credit is actually supported by the Government of Western countries consume artificially by pumping trying to promote stability. Slicing and derivatives and other financial instruments that even before the recession of shuffling credit credit risk propagation attempts. The real problem is that investment in productive sectors of the economy and the real risk of such exposure is sufficient to require to be taken in Western economies. Spending money on new research and technology to ensure that the pay is so much easier, and we hope that a stable return assets to the sink your cash.

Blame for the crisis, as well as responsibility for the way out of it, as can be seen, some bankers hope to restore confidence that better corporate responsibility. But in reality, to convey the message that bankers need for economic stability, the banks can not be solved by more regulation, but how to run the west requires a fundamental reassessment. They are not greedy, but we agreed to spend their efforts in the financial sector would be better to spell their real economic threat. Real social responsibility will be accepted.

The Government effectively controls the two largest banks in the UK. This may be a good idea if it's something major event is planned to infrastructure projects such as banks, which could encourage investment in the UK is imperative. It's also a good innovation for these banks to invest more different from the British economy is the most promising ideas will be invited to a lot of these areas.

What is Credit Crunch?

"Credit crunch" to the concept as long as the Great Depression of the 1930's has a history rooted in the past. Lack of financial capital and the borrowers' financial health of the cumulative effect of reducing the quality of banks in 1990 to reduce the supply of credit. The term of the credit shortage in the supply of credit to a serious recession is already in use long before that. Lack of liquidity in the money market at that time effects and that some of the capital markets between banks has affected credit availability is limited close.

Financial market turmoil in 2007 and 2008 the most serious financial crisis since the Great Depression led to the greatest effect on the real economy at risk. During the credit crisis in the economy, recession or depression is different, but potentially one or other of foreshadowing. "Credit crisis" is widely in the financial services market in2007 in the U.S. mortgage loans, the fall of the disaster are considered, but the credit crisis has squeezed credit in any given period may apply (

According to Bernanke and Lown (1991), a credit crunch as a decline in the supply of credit that is abnormally large for a given stage of the business cycle. Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch. They define that the credit crunch is the part of the business cycle, in other word credit crunch define as a recession. Credit crunch means the crisis of the money where the supply of the money reduces, its also called the liquidity crisis.

Bernanke, Ben S., and Cara S. Lown (1991), “The Credit Crunch,” Brookings Papers on Economic Activity, no. 2: 205–47.

Mark McCracken, define credit crunch as, “A sudden reduction in the availability of loans and other types of credit from banks and capital markets at given interest rates. The reduced availability of credit can result from many factors, including an increased perception of risk on the part of lenders, an imposition of credit controls, or a sharp restriction of the money supply.” He said that the credit crunch means that the availability of the credit like loans and other types of credit given by the banks to be reduced due to the high risk of money supply.

Martin Wolf, associate editor and chief economics commentator for Financial Times, as well-informed observers believe that the credit crisis in 2007-08 as a first world economy will be equal to the value of a turning point in the market in the 1997-98 crisis and the new boom and bust -2000 (Wolf, 2007) dotcom. As the previous crisis, the global impacts of the credit crisis, as international investors are involved. Asset-backed securities from the risky mortgages were packaged and sold to investors with bank sand pension funds around the world, as the dot-com stocks in emerging markets, and before them were.

UK Economy: Rise and Fall

2007 - Britain since 2001 as housing and stock market experienced a double bubble. Cheap and easy credit, loose regulation and a rule was violated. 125 per cent mortgage EMPLOYEES, vintage, and the London Stock Exchange (LSE) for three times in some areas prices have reached record highs.

Housing prices peaked in the third quarter of 2007 and the long decline of wholesale funding was unable to get a British bank Northern Rock as the lender of last resort to apply to the Bank of England in September 2007 set into force. Generation of British bank deposits led to the first, and eventually forced the government to nationalize the bank.

UK Economy 2008

Northern Rock the British government involvement in the financial sector does not know at the end. Bradford and Bingley was forced to nationalize, Alliance and Leicester and HBOS have bought to get help and to provide capital funding, and more than $ 400 billion pounds of underwriting and more leveraged giants such as RBS and Lloyds TSB and Barclays, as a relatively strong Group, HSBC and Standard Chartered.

Q2 2008 UK officially in recession and sterling in comparison with other major currencies has dropped by 30 percent. With the fall in consumer confidence and rising unemployment, a decline in the automotive and retail was the next victim. High St Woolworths, Zavvi (formerly Virgin Megastores), MFI, Adams and water ferries Wedgwood Christmas 2008, including the names of which went into receivership.

UK Economy 2009

In 2009, the British economy at a faster pace of decline was originally suspected. In all areas of the UK economy, consumer confidence, housing market, employment and production are struggling with the minimum point, or leave more quickly than ever before recording.

Recession and a fall from his previous statements that the "boom and bust" cycle was educated tends to overcome the shortcomings, the Prime Minister Gordon Brown has announced a major economic stimulus package. Above the already high 40 percent debt to GDP level to add the sovereign credit rating of Britain's lowered its speculative value of sterling will be leading to more slides.

By the end of 2009 the UK economy contracted by 3.2 per cent (although some economists are revising the figure below) with the UK government debt, a staggering 70 percent are likely to grow.

Subprime Mortgages

Mortgage crisis began in February 2007 and entered its second year with a vengeance. Mortgage crisis in July 2007, a three-year period of unprecedented global liquidity and credit crunch created more. Liquidity market faster and wider over time has become critical in several different waves, and now the subprime market position goes far beyond its borders. For instance, currently difficult for lenders to rise or credit card, auto and consumer loans, including student loans, many types of financing to maintain and so rapidly that borrower’s can not get it. But the best corporate and municipal bond financing to all credit dried up and worry about the capitalization of the largest insurance companies regard, in particular, because of the risk. Higher potential for further contamination of mortgage loans is looking shaky there. Many parties are now bad real estate loans as the mortgage crisis, and possibly more since the Great Depression to see the overall U.S. economic crisis.

Another, more useful ways financial market participants to see the crisis, which led to the result of the action is considered. Traditional financial conditions, investors are perfectly rational for market participants to take positions on either side of the current asset price is expected to provide opportunities for independence.

Behavioral finance approach, as it was originally developed by Shleifer and others1 (De Bondt and Thaler 1985, Shleifer and Summers 1990; Shleifer and Vishny 1997, 1999 Schiller) focuses on two aspects of the functioning of financial markets: investors psychology who can not work for them traditional financial analysis, logic, and investors the possibility of arbitration of the wrong asset limits. 

Fischhoff Slovic, and Lichtenstein (1977) showed that the decisions of investors confidence, for example, in the future with greater confidence than in the past, I think the same would be justified. They found that events that occur, some people actually took place 80% of the time, contrast, and events that people thought was impossible has become 20% of the time. This overconfidence is easy on most of the investments in collateralized debt obligations are understood, although the transparency of the evaluation process clearly played a major role, as well as can be.

Subprime mortgage flow directly or indirectly, from many posts, which are based on the performance of investment through loan losses. These sub-prime mortgage support for the position (MBS) securities, collateralized debt obligations (CDO), credit derivatives and other financial guarantees and liquidity support system included. Soon, more junior positions were more severely affected, and all are equal, but also the highest positions were adversely affected.

The Sub-prime Mortgage Crisis and its Expansion to a Global Financial Crisis

Higher prices in the housing market in the U.S. after fourteen years, the first decline in 2007 brought nearly two decades. This trend is another factor contributing to the development of the crisis with the show, in Fig 1 Low mortgage rates:

In 2007, the reasons for the decline in house prices since then have been widely some obvious conclusions and argued with a number of additional possible effects. Clearly, that U.S. banks borrowers who are unable to repay their home loans until the housing market (close to 10% per annum in the early 2000's) to an upward trend in prices is not likely to continue to borrow.

The initial crisis was caused by the subprime mortgage crisis, because it is rather the fact that mortgage loans on the basis of a growing family were under the basic quality and insufficient resources have been servicing the debt, except when the defendant has been extended until house prices have been the last ten years has continued to grow at 5-10% per year. Lenders in the lending process to determine the likely outcome has been criticized for being - but brokers who packaged them and sold them in the bond market sold with almost all of these loans, there is very little credit has been a sufficient incentive to pay attention (besides the hope that prices Housing continues to generate funds for such borrowers to pay) to be. Borrowers’ credit on the level of understanding of the conditions that were highly risky for them, instead, has been criticized for failing to adopt. And regulators for these credit and capital markets, as they were resold for failing to recognize the systemic weakness have been criticized.

The crisis around the world since the end of March 2008 in the interbank lending market, starting with the virtual shutdown continues in 2009. Bankruptcy, as the U.S., where the mortgage was so toxic, if not often, but even there, the Belgian lender Fortis major failures or government intervention in Europe, including the British lender HBOS forced mergers of financial institutions, Northern Rock and Bradford and Bingley.

Liquidity Crisis

The financial structure has changed dramatically in the past two decades. First the banks that provide mortgages or loans on their books, traditionally, but now they transfer credit risk to other financial institutions in new ways. The traditional model of banking activity "initiate and distribute" banking model in which banks and mortgage loans, package them, grants, and was replaced by various financial investors to transfer. continuous process of financial innovation has led to an array of new structured products, many categories of risk for securitization, off-balance sheet vehicles, such as the emergence of the shadow banking system to.

Housing boom and lending frenzy two trends in the banking sector, which contributed significantly to the crisis laid the groundwork. First, banks' balance sheet instead of holding loans on banks to deliver early and went ‖ model. Banks credits to pack and handed them over to various other financial investors still risk-loading. Second, banks with shorter term instruments financed their holdings of property. Change the left bank is particularly exposed to liquidity drying up of funds.

Financial Risk Areas

Risk everything known to man, as he faced adversity before. It is an integral part of human development. Risks to their physical environment were mainly found in the future in their social environment. Over time, the risk has been developed together with the man. The main risk to the Neolithic man was attacked by wild animals. With the discovery of fire has been reduced.

Financial risks of opportunities that exist with any type of financial investment. Typically, the goal is to invest in low amount of risk since it is more likely to make a return appearance is safe. Both individual and corporate investors use to invest in any stock market in order before performing risk.

Financial model risk can be mitigated in two ways. One of shares (CAPM), using cross-hedging by using other derivatives, the investor usually uses both, although their application is different.

Portfolio, any demand for financial assets in the portfolio lies on the correlation between all assets. Two of the portfolio, the property is negative (in other benefits with the results of loss) correlated, they naturally defend each other. The financial model for the return of the portfolios are evaluated. CAPM is the most popular models.

CAPM and Capital Asset Pricing Model is able to model most commonly used financial portfolio diversification. Returns on risky assets on the right, i.e., the less they naturally with each other and not against individuals, to protect against the risks of ownership of risk in their hands variety. Well-diversified portfolio of financial assets held personally less than the volatility of returns will be.

Securitized loan market, the leverage of the bank and maturity transformation in the development of interbank claims were accompanied by changes in the structure. There are many cases of bank risk and liquidity in the market was a serious underestimation.

Maturity transformation - long-term liabilities, total assets - banks are increasingly not only met, but also investment banks, off-balance sheet vehicles in the U.S. mutual funds. A wider range of fast sales through the ability to fulfill the obligations and long-term debt has increased significantly the cost - the financial system is more dependent on the liquidity created through marketing. When the crisis began, the assumption that a liquid market for these devices should be distributed across their quality problems, as a mistake.

In addition, cultivation and interbank money markets from a depth of globalization, banks base their credit their deposit market shares were able to grow at a faster pace. This model was used by some UK banks mortgage. As the crisis continues, banks found that their ability to wholesale interbank fund-raising has disappeared. RMBS market liquidity has collapsed at the same time, they could sell their books that they do not, except with the securitized mortgage loans.

How to credit crunch affects to those areas

It is basically a financial risk, systematic risk and unsystematic risk of two types. Systemic risk is the risk that the denial of the firm to make an impression on others, can lead to the collapse of the financial system, as indicated.

So how does it work? I think that you are a portfolio of financial assets (in this case, securities) is. Each stock as a form of risk is explained by two elements of risk. These systematic and systemic risks, Personal Safety unsystematic risk through a well-diversified portfolio can be reduced. Theoretically, this is absolutely the market is similar to holding a diversified portfolio can be reduced to nothing. This is usually not very large portfolio.

People money based on the overall market will go up or down. (That is, if your portfolio is an ideal choice for the DJIA, you will make money if the market moves).For most people who have portfolios with real money, regardless of market movement will be.

Given that no systematic risk is almost negated by large portfolio (CAPM involves such a large portfolio), but the risk that is systematic risk. Thus, the only kind of risk is systematic risk and the investor will receive a refund. Systematic risk is measured as beta. Beta (β) / security market portfolio (CAPM) to calculate the return of volatility risk.

How to avoid Financial Risk

Financial risk to stop it, because that is part of the economic cycle is not possible, but can change various financial strategies. The strength of modern risk management strategy for the company, so the link will come. Customs strategy, risk management based on risk-based assets is concerned, many companies and initiatives to combat the loss of disability. Strategies involved in risk management, organizations risk, cost and cultural thinking that the work day with a ratio as estimates. Risk management and strategy come together in three main areas of impact of the increased level of understanding and monitoring to ensure that:

Strategy formulation:

That is the strategy of the Mission. Roles and responsibilities are defined in the organization. Management strategy is a component of people, risks corporation culture, a process component, which rules and regulations, the risk will be used by risk management company, and defines the technology components that capture measures, monitors and reports on the risks.

Strategic Risk Management:

For each company, some of the risks inherent in business strategy. Risk management tools and strategic information to identify hazards and assess their potential impact in the long term. The risk that technological changes, new competitors or prolonged exposure may include the fair market value. Although some short-term price risks in liquid markets can be prevented, the risk of long-term strategic risk management needs of high order.

Business strategy is to:

In addition to measuring and protection of the existing strategy, risk management tools and indicators to evaluate various strategic alternatives for the use of possible new directions for their risk assessed, monitored risk-return usage. . This gives companies one more tool that they use to assess the future direction of trade can change the face. . Guide them to consider this potentially lucrative new opportunities for strategic risk management issues related to risk, regardless of where in the organization for employees who perform C-suite executives and Risk Committee provides the structure of the address below during the day - the day of surgery.

Financial Strategy

The inability of strategic management, which will be ideal for all strategic decisions, define the concept that a decision on the whole lump, and what's more, they are often poorly structured based primarily on, and so they do not allow assessment of all relevant information.

The main strategic document management has been implemented in the concept and Miloslav Keřkovský Oldrich Vykypěl, interrelated strategies (see Figure 1) in a hierarchical system based on survival. This strategy has a clear structure for a complex issue. A basic concept of a reference type, and defines the boundaries of individual strategies and the strategic level, and specific types of businesses, including a specific example, in terms of methodology. Completion of the possibility of the concept of aspect.C:\Users\NILK@NTH\Desktop\Capture.PNG

Researcher has identified an internal review, and financial components that will be included in the proposed financial strategy will be to analyze the structure of the material.

Financial Strategy, as a functional strategy, taking into account the overall corporate strategy. Thus, the profit distribution strategy of financial strategy, investment strategy, including financing strategies, and legal relations strategy.C:\Users\NILK@NTH\Desktop\2.PNG

Key Decision of Financial Management

There are main three key financial decisions which need to practically implements all financial organisation to increscent financial stability.

Investment Decisions:

Investment decisions determine the funds and availability of recourses are committed for the new projects this is applicable for the all types of organisation. In the finance sector investment decision also determine the how much invest, when to invest and where to invest. Because the financial sector’s main concept depend upon the investment decision. Banks chose the investment level which affects the long-run economy growth rate.

Financial Decisions:

Decisions on funding to meet financial goals for optimal financial and look at the non-current assets and working capital are efficiently managed. Financial managers must have good knowledge of the device, a sound capital structure; investigate the appropriate balance between capital and borrowings. These managers are also the difference between profit and cash flow is a very clear understanding of the needs, keeping in mind that the book of little use if the currencies supported by enough to pay for the property and keep the working capital cycle. Assessment of risk of excessive debt financing solutions requires a good knowledge of priority rights of creditors because of the assets of the organization carries a high risk. Decisions related to risk of large-scale foreign trade zone, where the power unit of currency fluctuations and managers, as well as hedging should be aware of various security procedures in.

3. Dividend decision:

Dividend decisions determine how much and how often related to their incomes to the owners as a body can be paid out of profits. For any awards in two ways to search for its investment income a person has invested capital and paid in cash income growth. Income picture for the individual entrepreneur will be returned to a limited liability company, which term dividends.


Optimal financial policy (capital structure, cash and liquidity, and shareholder distributions), so the overall alignment and consistency issue as a "right" settings do not have a lot to find. Strike action disagreement with the expectations of - -. Brings to the company's share price of the element of surprise break with the announcement of Tyco, where markets were not surprised that once, but twice in the case, then the strategy in a sudden failure of a witness.

(Financial Strategy for a Deflationary Era)

Elements of financial policy

The Function of Strategic Finance

Financial Strategy is one part of the Managerial policy that determine financial decisions and Investment, and which are basic policy for wealth maximisation of shareholders. Both types of decision also divided in to two different categories which is long-term which includes strategies or tactical, and another is short-term which includes operational plans.

East to be unique, as a rule, significant real estate costs may include, but are of uncertain future benefits. Consumables required for the model without complex forecasts and associated return of "time value of money and the risks, then the penalty for mistakes are severe, can lead to a corporate liquidation.

Conversely, operational decisions (working capital management area) at a frequency or infinitely divisible, so that funding can be achieved in the piece. Costa and returns are usually easy to fix with the current data from any weakness in the forecast in a quantitative sense. The decision may not be as irreversible.

However, functions of financial management’s, the financial decision and investment should involve:

- The constant search for investment opportunities.

- The most profitable opportunities in the absolute terms, selection.

- Interior and exterior of the optimal combination of the funds needed to finance these opportunities determination.

- Financial acquisition and disposition of money creating a system of operational control.

- A guide for future decisions, as the analysis of financial results.

None of these functions are independent from each other. a key position in all decision-making processes to capture and, of course, requires high-level coordination.

The effects of external and internal limitation on financial strategy

There are many constraints when organisation decides to take any finance related decision means making the financial strategy.

Internal barriers:

Two main internal constraints on financing strategies and funding are being prepared. Conservatives argue that the plans for the capital structure can be implemented to maximize the value of the firm. Modigliani and Miller argue that the tax shield vulnerable unit price than the current value and cost of financial constraints, may not exceed the value of the competent units.

Borrowing in the capital structure begins to prepare on the side of the main argument is that interest paid attract tax benefits. Borrow against the argument that the imposition of financial risk in this block. Financial managers, policy balances the economic, public policy and financing sources and their cost position in contrast to these features of policy impact of capital structure can not be ignored.

Other internal barriers include financial strategy:

- Limited access to funding

- sources Maintaining good relations with investors and investment needs to ensure a satisfactory profit

- Key shortage of specialists

- Limited production capacity

2 External barriers:

- Influence of Government

- Regulator Key

- economic consequences

- Accounting concepts: extensive knowledge of accounting will be addressed in this volume. However, discussing current and emerging issues in the financial statements may be needed.

- Sources of funding and their value, when the capital structure policy.

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