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Question 2 FreshMart plc, a UK conglomerate which process food with offices in UK, Norway and South East Asia. The company was founded in 1980s, specialising in the processing and stocking of warm water shrimps, especially the black tiger and the fresh water king prawn. After processing and packing, these are exported to most countries in Europe. FreshMart has more than 1,000 products of seafood, poultry, fruit, vegetables, and finger foods. Its offices in Manchester, Norway and India which imports, processes and distributes frozen seafood. Its operation in Norway processes products ranging from its traditional shrimps to poultry, dry foods, finger foods, frozen fruit and vegetables, and supplies it to the catering trade. Its business runs a production facility and a distribution operation in India. The company has an annual turnover of 500m worldwide, and a global workforce of 8,500 people. FreshMart has a customer base of retailers, wholesalers and distributors throughout the world, with key markets in Europe namely Germany, Netherlands, France, Sweden and Belgium. Its exports account for more than two-third of sales and around one-half of all shrimps exported from Britain come from FreshMart 's processing operations. The company's international sales have grown by 100% a year, from 100m in 2019 to 200m in 2020. The group risk manager has forecasted the foreign currency loss for the forthcoming year to be 20 million. The realized amount would have a detrimental impact on the company's stock price. Some related economic data are gathered in Table A. The company chief financial officer is performing a strategic review on the group's activities. His major concern is foreign exchange risk of the international operations. In reviewing the corporate strategy of the group, the chief financial officer proposes to shift the processing operation to a new production and distribution facility in Myanmar from India to mitigate the foreign exchange risk. This is also in line with the announcement of several states in India have stepped up restrictions in recent weeks, including local lockdowns and curfews. That includes India's massive second wave of Covid-19 infections began in February 2021, putting the economy under pressure. On the other hand, the managing director is concerned of the Myanmar's political turmoil arises from the ethnic conflicts. UK Interest rate (%) Inflation rate (%) GDP Real (%) Population (mil) Unemployment rate (%) 6 1.5 -5 68 5 Table A Europe India Norway Myanmar Union 8 12 10 14 3 5 3 10 -3 -6 -5 -10 448 70 5 54 7 1.5 2 4 Euro to 1 Rupee to 1 Krone to 1 Kyat to 1 1.1625 103.55 11.68 2336.24 Spot Exchange rate Required (in no more than 1,000 words) (a) Critically evaluate the strategy proposed by the chief financial officer of FreshMart with respect to foreign currency risk reduction. What are the other factors to take into consideration in relate to the proposed strategy? (Note: show all calculations) (25 marks) (b) Operational risk is risk that arise due to inadequate procedural control, system failures and human error in handling business operations such as procurement, food processing, distribution, pricing, administration, logistic, etc. Discuss and assess four (4) types of operation risks that FreshMart are exposed to. Suggest how these risks are mitigated. Discuss the challenges of your suggestions. (15 marks)