As a junior congress person you have been asked to help promote a bill to allow casino gambling in your state. There is much opposition to this bill. Using distributive bargaining, discuss the pros an

1.What are the main financial risk management issues that Cathy and the rest of the management team at Kilgore need to focus on?
        To deal with the financial risk arising from the new contract, Cathy and her team had been discussing the issues and ideas for managing them with Steve since the start of negotiations with the Japanese manufacturer. Everyone recognized the central importance of getting the risk management strategy right, even if the nuanced details of how to hedge created a series of quandaries. That led to Steve bringing in Rory and Casey to apply a fresh perspective to the problem. However, they proved to be of limited help, and Cathy thought they made the discussion regress with their questions about how the various hedging products worked.
      Up until now, Kilgore did not have to concern itself much with currency hedging. With sales and expenses almost exclusively in Canadian dollars, there was little need for it. Likewise, the low Canadian dollar from the mid-1990s through 2004 had meant that the threat of U.S.-based suppliers entering the Canadian OEM market was minimal. That all changed of course with the new contract and with the Canadian dollar close to par with the U.S. dollar.
         Cathy and her team had been discussing the various issues and how best to handle them for a couple of weeks, but in the process they were generating more questions than answers. That had precipitated the meeting with the management team that had begun two hours before. Steve was a little lost, and frankly intimidated by the choices that Cathy and her team had put forward. While conceptually Steve understood options, forwards, and swaps, the details and the implications of using the different contracts were confusing to him. Deep down he liked making things and selling things, and preferred to leave the finer financial details to others.
        Casey, the sales manager, for the most part stayed out of the discussion. He felt that currency risk was something that was beyond both his control and his area of expertise. However, he did appreciate how a sound hedging strategy could give him an edge in negotiating new sales contracts with other foreign customers.
          Rory, however, pounced on the opportunity to give his opinion about a hedging strategy. He liked the certainty of cost projections and believed that entering into long-term swap contracts would be best. He particularly favored doing a currency swap, which would allow Kilgore to fix the exchange rate at which it would exchange a set amount of U.S. dollars for Canadian dollars throughout the period of the contract. Cathy, however, was concerned that it could lock them in too much and potentially eliminate the opportunity for bigger upside profits. Casey at this point wondered aloud if it was possible to just hedge 50 percent of the size of the contract: "That way we will be right on at least half of the hedge." Cathy just glared at him for that comment, and thus Casey remained quiet thereafter.
            There was also the issue of how to structure a swap to account for the embedded options in the manufacturing contract. If the options in the manufacturing contract were exercised by the customer, a standard swap could leave Kilgore exposed at unfavorable rates. Conversely, if Kilgore entered into swaps expecting the contract options to be exercised and they weren't, then it exposed Kilgore to being overhedged.
               While he didn't fully appreciate all the nuances, Steve did recognize that they could be at a significant disadvantage on new contracts to U.S. competitors (and even Asian competitors) if the Canadian dollar appreciated in the long term and they were locked into a long-term currency swap agreement. This could dramatically affect the value of any exit strategy he might choose.
Cathy explained that an alternative to a swap would be to use short-term forward contracts. These would have to be rolled over on a frequent basis due to their shorter term; however, they would provide more flexibility and would not lock in Kilgore for more than a year, or even less if shorter-term contracts were utilized. However, this created a new form of uncertainty as rates on forwards several years into the contract would be unknown, and thus Kilgore could be locking in at either more advantageous or more disadvantageous rates in future hedges. There was also the concern that doing forwards or swaps would use up Kilgore's borrowing capacity at the bank. Having financial flexibility and borrowing capacity would be crucial until Kilgore got a handle on the cash flow implications. For this reason Cathy and her team explored the use of currency futures contracts. While these contracts had the advantage of being exchange traded, the maintenance of margin requirements would be another issue for Cathy's team to manage, to say nothing of the potential short-term implications of margin calls on cash flow concerns.

2.How would you prioritize these issues?
         The Financial Risk Management process is not a one-time thing. It is an ongoing process, which is a given, since financial risks can come from all directions, at any time. Prior to starting the financial risk management process, there should be a clear understanding of the goals and objectives of the organization, since these will dictate the direction of the entire undertaking.
Step #1: Identify and prioritize the financial risks that apply to the business.First, let us take a look at the most common types of financial risks that businesses are exposed to.

Credit risk or default risk: which arises from the inability of one party to pay or fulfill its obligations to another, such that they will be in default. If a company is unable to collect its receivables from customers, they will have poor cash inflow and lost income.

Market risk:which arises from a decline in the market subsequently resulting to reduced or lost value of investments. If the assets of the business will decline in value, but all else remain the same, the net worth of the company will also decline.

Liquidity risk:which arises when the assets or securities owned by the business cannot be immediately converted into cash when needed. This results to the business being in danger of defaulting on its obligations, such as making loan payments to creditors and dividend payments to the owners and investors. The owners or members of the board of directors may end up becoming personally liable for the debts of the business.Operational risk, which arises from problems or issues in the conduct of daily operations of the business, such as machine breakdowns, failure of business processes and manpower errors. Mistakes committed may result to considerable financial losses, and that is simply one of the many operational risks that businesses have to deal with on a daily basis.

Refernces:

Abdullah, N.A.M., Zakuan, N., Khayon, M., Ariff, M.S.M., Bazin, N.E.N. and Saman, M.Z.M., 2012. Adoption of enterprise risk management practices in organization: A Review. Int. J Busi. Inf. Tech. Vol, 2(1).

https://www.cleverism.com/financial-risk-management-guide/