An assessment on risk exposures and hedging strategies of selected mining and oil companies

• Main Authors: Arceo, Celine Mae, Enriquez, Akira Erika H., Manzo, Michelle Mary R., Tan, Stefannie G.
• Format: text
• Language: English
• Published: Animo Repository 2013
• Subjects: Mineral industries > Philippines; Oil industries > Philippines; Hedging (Finance); Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18479
• Institution: De La Salle University

The mining and oil sector in general is known to be a very volatile environment to operate in. The uncertainty of a return on their investment has been compounded in recent years due to increased volatility of interest rates, commodity prices, and foreign exchange rates, to name a few. Accompanying that is what the researchers have also learned that when a firm is exposed to risk, hedging can be recommended in order to lessen the impact. The researchers wanted to assess selected companies under the mining and oil sector of the Philippine Stock Exchange in order to see which companies should engage or continue to employ hedging activities, depending on their current activities. To this end, the researchers employed two parts in the study first is a sensitivity analysis to ascertain what risks the companies are most exposed to, and in the second part, indicators were used to assess and come up with recommendations whether these companies should or should not hedge. Findings suggest that companies which currently engaged in derivative hedging activities should continue to do so, as well as those employing natural hedging. However, it is to be noted that the group recommends only short-term hedging (less than 5 years), given the extreme volatility of commodity prices.