Final Activity: Derivatives and Risk Management Analysis

Scenario: Global Commodities Trading Corporation

Background:

Global Commodities Trading Corporation is a multinational company engaged in the import and export
of various commodities. The company operates in a volatile market where commodity prices can
fluctuate significantly. As the Financial Manager, you are tasked with conducting a comprehensive
analysis of derivatives and developing a risk management strategy to protect the company from adverse
market movements.

Objectives:

Analyze the use of derivatives in managing commodity price risk.

Evaluate the advantages and risks associated with using specific derivatives instruments.

Develop a customized risk management strategy for Global Commodities Trading Corporation.

Activity Tasks:

Task 1: Derivatives Analysis (20 points)

Provide an overview of derivatives and their role in managing financial risk, specifically focusing on
commodity price risk.

Explain how derivatives, such as futures and options, can be utilized to hedge against adverse market
movements.

Task 2: Advantages and Risks (25 points)

Evaluate the advantages and risks associated with using specific derivatives instruments for commodity
price risk management.

Consider factors such as cost, effectiveness, and potential counterparty risks.

Task 3: Customized Risk Management Strategy (25 points)

Develop a customized risk management strategy for Global Commodities Trading Corporation,
considering the specific nature of its operations and the commodities it deals with.

Justify your choice of derivatives instruments and the proportion of the company's exposure to be
hedged.

Task 4: Implementation Plan (15 points)

Develop an implementation plan for the recommended risk management strategy.

Consider aspects such as communication with stakeholders, training, and monitoring procedures
Task 5: Financial Impact Assessment (10 points)

Conduct a financial impact assessment to estimate the potential cost and benefits of implementing the
risk management strategy.

Consider the impact on the company's financial statements, cash flows, and overall financial health.

Task 6: Continuous Monitoring and Adjustment (5 points

Propose a plan for continuous monitoring of market conditions and the effectiveness of the risk
management strategy.

Identify triggers for adjustments or modifications to the strategy based on changing market dynamics.

Submission Guidelines:

Submit a comprehensive report that covers each task with detailed analyses, justifications, and action
plans.

Use relevant financial data, examples, and industry best practices to support your analysis.

The report should not exceed 12 pages, font size 12 Arial excluding appendices.

Prepare with cover page

This final activity aims to assess your understanding of derivatives, risk management, and your ability to
develop a customized strategy to address specific challenges in a real-world scenario. Good luck!