QUESTION

a) Discuss the difference between centralized and decentralized risk management systems including the advantages and disadvantages of each

b) Ford Motor Company, a US based company, has business in several countries around the world. Ford frequently has expenditures and receipts denominated in non-US currencies, including purchases and sales of finished vehicles and production parts, subsidiary dividends, investments in non-U.S operations, etc. Ford uses a variety of commodities in the production of motor vehicles, such as non-ferrous metals, precious metals. Ferrous alloys, energy and plastic resins. Ford typically purchases these commodities from outside suppliers. To finance its processes, Ford utilizes a variety of funding sources, such as commercial paper, term debt, and lines of credit from major commercial banks. The company invests several surplus cash in securities of various types and maturities, the value of which are subject to fluctuations in interest rates. Ford has a credit division, which provides financing to customers wanting to purchase Ford's vehicles on credit. Overall, Ford faces several risks. To manage some of its risks, Ford spends in fixed income instruments and derivative contracts. Some of these investments don't rely on a clearing house and instead effect settlement through the execution of bilateral agreements. On the basis of above discussion, recommend as well as validate the risk exposures that should be reported as part of an Enterprise Risk management system for Ford Motor Company.

c) One of the executives of Ford has been saying that: "Risk management is a costly technique that has limited benefits." Discuss.

d) Demonstrate how utility functions could affect decision making process regarding risk of Ford