Fondir Co, based in the USA (currency $), is involved in the production and sale of high-quality

foods under its popular brand called ‘Delibeli’. Initially, its products were mainly aimed at the
USA market, but increasingly the products are sold internationally to North and South America
and to Europe. This rapid growth has meant that Fondir Co is expanding its production facilities
and receiving its revenues in a variety of currencies.
Fondir Co has developed robust systems to manage its operational risks, but so far it has not
managed its financial risk from currency and interest rate fluctuations. Fondir Co’s board of
directors (BoD), on the whole, is supportive of the opinion that the company’s financial risks
should be managed using derivative products, and the company’s approach to risk management
should be communicated to its main stakeholder groups including shareholders, managers,
lenders and employees.
Fondir Co’s marketing director questioned whether these and other financial risks should be
managed at all. He suggested that the costs of managing such risks would outweigh the benefits
derived from the management of these risks, and therefore would be disadvantageous for the
company.
Fondir Co’s finance director (FD) argued that although many risks can be managed using
derivatives, some risks were harder to manage. She gave the Italian market as an example,
where direct competitors from France and Germany have successfully penetrated the Italian
market. As a result, Fondir Co has found that its sales revenue from the Italian market has been
falling and the FD suggests that this is due to the weakening of the Euro (€) (the Italian currency)
against the $. The FD is of the opinion that this relative weakening of the € is likely to continue for
some time and cannot be managed through the use of derivative instruments.