Hedging Risks With DERIVATIVE SECURITIES
Hedging strategies are able to offset ranges of risks which caused by the uncertain changes in commodity price, currency exchange rate, or interest rate. This report uses three hedging strategies mainly to deal with those three risks respectively. The illustration is based on the operation of ExxonMobil, the top oil and petrochemical company which is exposed to the commodity price risk, currency risk and interest risk. In addition, the report contains the analysis of the advantages and limitations of those strategies applied.
As the largest refiner and marketer of petroleum products in the world, ExxonMobil owns a dominating resource of gas and oil in global market. ExxonMobil is also a technology company who is aiming at exploring a better, safer and clearer method to transport the energy worldwide through the latest innovative technology. With production facilities and sales products worldwide, ExxonMobil engaged in oil and gas exploration on six continents.
ExxonMobil is the first company whose market capitalization exceeds $400 billion. By the end of April 18, 2013, ExxonMobil places the fifth in the global market in terms of market capitalization. According to its 2012 summary annual report, the earnings of ExxonMobil in 2012 was $45 billion and the total shareholders distribution was $ 44.88 billion. Dividends per share increased 21% in 2012 which was the 30th consecutive year of increasing. The distinguished results could be attributed to its rigorous investment policy and operations performance supported by effective risk management (ExxonMobil 2012).
The fluctuations in the crude oil, natural gas, petroleum product in response to changing market forces are the main cause of commodity risk faced by ExxonMobil (ExxonMobil Annual Report 2012). From May 2012 to May 2013, the price...