The rapid global expansion of Intrepid Plc business in recent years has resulted in material changes to the foreign exchange (FX) composition of its earnings and costs.

The current composition is as follows:

Earnings Costs:

EUR 50% EUR 70%

GBP 20% GBP 5%

USD 20% USD 5%

CNY 10% CNY 20%

In the last financial year earnings amounted to Euro 300m (equivalent) and costs to Euro 230m (equivalent). Intrepid Plc's main competitors are Chinese companies, whose costs are virtually 100% denominated in Chinese Yuan (CNY). The Chinese economy is currently experiencing a growth in its price inflation rate.

Intrepid Plc has no overseas subsidiaries. At the current spot rates of exchange 1 EUR is valued at: 0.7 GBP, 1.4 USD, 10.5 CNY. The current 1-year interest rates are: Euro 4% p.a., GBP 6% p.a., USD 5% p.a., CNY 7% p.a.

Required: To produce a report for Intrepid PLc's Finance Director that:

1) Identifies the current risks arising from the current (FX) composition of Intrepid Plc's global business.

2) Recommend the appropriate hedging strategies that should be adopted to manage Intrepid Plc's Foreign Exchange Risks.