FINANCIAL DERIVATIVES

AND
RISK MANAGEMENT
PGDM
Trimester-6

INTRODUCTION TO FDRM

Dr. Garima Sisodia

Why FDRM ?

Risk Management Policy and Implementation at ONGC

Oil and Natural Gas Corporation (ONGC) is an Indian public

sector multinational crude oil and gas company.
It is the largest oil and gas exploration and production
company in the country, and produces around 70% of
India's crude oil (equivalent to around 57% of the country's
total demand) and around 84% of its natural gas. 
In November 2010, the Government of India conferred
the Maharatna status to ONGC
ONGC Videsh Limited (OVL)

Q) What are the kind of risk this firm might be exposed to?

Financial risk management objectives

• Liquidity risk management
• Credit risk management
• Market Risk
• Market risk is the risk or uncertainty arising from possible market price movements and
their impact on the future performance of a business.
• The major components of market risk are commodity price risk, foreign currency risk and
interest rate risk.
ONGC Videsh Limited (OVL)
Q) What is the intensity and magnitude of their risk exposure?

Commodity Price Risk

ONGC Videsh Limited (OVL)
Q) What is the intensity and magnitude of their risk exposure?

Forex Risk
ONGC Videsh Limited (OVL)
Q) What is the intensity and magnitude of their risk exposure?

Interest Rate Risk

ONGC Videsh Limited (OVL)

Q) Suggest how can they mitigate these risks? How well did they actually
managed it?
The Company has an Enterprise Risk Management Cell (ERM), risk framework,
risk policy and risk portfolio which are periodically monitored by the Risk
Management Committee, Audit Committee and the Board.
The Enterprise Risk Management (ERM) system defines process to identify,
assess, record, monitor and review risks in order to minimize the probability and
impact of unexpected events.
ONGC Videsh won the India Risk Management Award constituted by ICICI
Lombard & CNBC-TV18, second time in a row in the category Best Risk
Management Framework and Systems – PSU
Financial risk management objectives

Financial risk management objectives

• Liquidity risk management
• Asset Liability Management
• Contractual maturity/agreed repayment
periods
• Issue of securities
• Credit risk management
• Reserve Borrowing Power
 Commodity Risk
• Impact of international crude oil and gas
prices on financial assets or expected
future cash flows.
• Macro level analysis
• Supply chain disruption due to Pandemic
and lockdown
• India net importer of oil & gas
• Temporary phenomenon
• Oil Price Risk Management Policy and Oil
Price Risk Management Committee
(OPRMC)
• reviews and monitors risk management
principles, policies and risk management
activities
 Commodity Risk
• Derivatives & Hedging
FOREX Risk
• Retranslation Risk
• Account of receipts / revenue and payments / expenses
• netting off naturally-occurring opposite exposures
• natural hedge from domestic sales
• Transactions denominated in different foreign currencies
• Risk Management Policy (RMP): foreign exchange exposures on both revenue and balance sheet
accounts are properly computed, recorded and monitored, risks are limited to tolerable levels and
an efficient process is created for reporting of risk and evaluation of risk management operations.
• Forex Risk Management Committee (FRMC): selection of hedging instrument based on market
volatility, market condition, legal framework, global events, macro-economic situation etc.
• Hedging policy on net exposure basis within acceptable risk limit using instruments like; plain
vanilla forward (including plain vanilla swaps) and option contract.
• During the year no hedging was resorted to, due to negative net exposure for the period.
Interest Rate Risk
• Interest rate risk -borrowed funds benchmarked to overnight MCLR, Treasury Bills and
US$ LIBOR.
• monitors interest rate movement (Forex Risk Management Policy and Forex Risk
Management Cell(FRMC) which actively review the forex and interest rate exposures.
• short term borrowing with no significant interest rate risk
• Money Market Mutual Funds-high liquidity and low risk
• floating-to-fixed interest rate swaps

• The Company does not uses derivative financial instruments for trading or speculative
purposes
Any questions ?