Financial Risk Manager Part 1

Anadolu Tire Company should prioritize hedging against foreign currency risk. This is because the company conducts business transactions in multiple currencies - it pays its suppliers in the local Turkish currency and receives payments from its customers in Euros. If the value of the Euro depreciates against the Turkish currency, the company's revenue from its sales in Eastern Europe would decrease when converted back to the local currency. This could potentially lead to financial losses. Therefore, to protect itself from the potential adverse effects of currency fluctuations, Anadolu Tire Company should hedge against foreign currency risk.

Choice A is incorrect. Pricing risk refers to the potential for a change in the price of a product or service due to market factors such as competition, supply and demand, among others. While Anadolu Tire Company may face pricing risk, it is not directly related to their business model of sourcing raw materials from Iran and exporting products to Eastern European countries.

Choice C is incorrect. Interest rate risk pertains to the potential for changes in interest rates that could affect a company's operations or its financial condition. Although this type of risk can impact any business, there's no specific information given in the question that suggests Anadolu Tire Company should prioritize hedging against interest rate risk.

Choice D is incorrect. Market risk involves exposure to changes in market prices, such as equity prices or commodity prices. While Anadolu Tire Company might be exposed to some level of market risk due to its operations, it doesn't appear as significant as foreign currency risk given their business model which involves transactions in multiple currencies.