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Appendix 2

3 F Company recently acquired a factory in Country S and commissioned a risk

report. The report highlighted a risk of burglary, a risk to the supply of one of the
key raw materials used in production (due to world wide fluctuations) and also
an environmental risk. The environmental risk was to do with the possibility of
poisonous emissions from the factory.

The Board feel that they understand the risks but need an explanation of
possible strategies to manage the risks.

Which of the following represents the most appropriate ways to manage
the three risks?

A Transfer the burglary risk, transfer the risk to supply of raw materials and
reduce the environmental risk.

B Reduce the burglary risk, transfer the risk to supply of raw materials and
accept the environmental risk.

C Transfer the burglary risk, accept the risk to supply of raw materials and
reduce the environmental risk.

D Transfer the burglary risk, reduce the risk to supply of raw material and
accept the environmental risk.

4 The directors of B are concerned about liquidity risk. They have identified
several issues within the organisation which appear to be increasing the
company’s cash flow problems.

Firstly, the credit control department is taking approximately 50 days to receive
payment from each customer. Secondly, inventory control is poor with
excessively high levels of inventory held in store at all stages of production.
Thirdly, suppliers are placing pressure on B to be paid early, within 25 days
instead of the usual 30 days agreed at the outset of their contracts. The raw
material which B purchases is often in scarce supply.

The board wishes to improve management of liquidity risk, beginning with
increasing risk awareness and improving employees’ attitudes towards
managing risk. They believe that if they lead by example, all employees will take
risk management more seriously and the liquidity problems may be reduced.

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