**Introduction of the company named TQM** Over the past decade, TQM had grown rapidly through acquisition, snapping up more than 30 firms and creating a highly complex conglomerate in the process. By 2022, TQM had become one of India's largest and the most diverse companies, covering a wide variety of businesses that include, inter alia, chemical, sugar, automotive tyres, electronic, medical instruments, media, and FMCG. While most consumers are unfamiliar with the TQM name but its brands are well-known among businesses and consumers. TQM was structured into seven business segments, each of which is bigger than most of their competitors' entire companies. **Issues identified in TQM** * Along with the high growth path various risks have magnified over the period. In one instance in the Tyre Segment, a particular lot of sizable quantity was recalled for faulty production. Following this incident revenue went down significantly. However, the replacement of tyres and communication with the customers helped the Company in gaining lost ground. * Various risks like strategic, reputational, credit, market, liquidity, interest, legal, regulatory, etc., have been rising. No independent review has taken place in order to bring a new perspective to risk management. * Managing business risks and financial risks is the top priority of the management going forward. There are some processes for managing financial risks but there are no formal methods used to manage business risks. In the absence of a structured process for risk management, the Board wants a clear roadmap for integrated risk management. * Mr. Rowan, who is head of the treasury, is confident that his team will be able to identify risks that can be clubbed under business risk and financial risk categories and would be able to design a system that would help in the effective management of the same. For better clarity, he will also prepare a list of controllable and uncontrollable risks so that effective steps are taken to manage them if found inadequate on review. * TQM has a very liberal credit policy in relation to customers which is reflected in rising receivables days over the period and also substantial jumps in bad debts in a major segment of the business. This also has created a liquidity problem for the Company. * The surplus cash has been invested in a mix of equity and long-term debt instrument to generate more return. In addition to this, the Company has made investments in five private equity firms. The Company regularly receives data on the performance of private equity investment along with Value-at-Risk (VaR) data. One of the juniors has made an effort to compare the VaR data of five private equity firms but could not do so as each private equity firm has a different time horizon and asset mix and uses different confidence levels. * The compliances have gone up significantly due to the diversified nature of business and so is the cost of compliances. In fact, there have been instances of payment of fines that were imposed by the regulatory authorities. In each case of non-compliance, operational managers shift the blame to internal audits. * Sometimes the Board also gets confused regarding the responsibility of operational risk management and internal audit. * In addition to the above, TQM has used significant debt amount for funding acquisitions and uses various interest rate derivatives like Interest Rate Swaps (IRS), Forward Rate Agreement (FRA), CAPs, Floors, Swaptions and Credit Default Swap (CDS) for hedging/restructuring existing and future debt. The Company has developed an in-house skill set to deal with such derivative products. But there is a problem of staff attrition, especially in the treasury area. Past data shows that the Company has become a training ground for treasury operations. To some extent, it helps in building a reputation but it also involves costs in training junior professionals. The Company has decided to prepare a structured training manual so that cost of training can be minimized. You, being an expert in financial derivatives, have been hired to prepare a training manual. **Future business plans** * The Board has agreed to support the management to identify new business opportunities. Following this direction, the management has ventured into the natural gas discovery business. The Chief Finance Officer (CFO) expects to borrow USD 20 million in one year's time to finance a new offshore drilling platform, and will need the funds for a period of one year. The current market interest rate is 5%. The treasury team expects that the rate will rise to 6.00 % by the time TQM needs the money. The treasury team has decided to lock in the 5.00% rate and accordingly has entered a 12 x 24 FRA at 5.00 per cent with a foreign bank, where the reference rate is the LIBOR. Multiple Choice Questions Choose the most appropriate answer from the given options.