A Study of Financial Risk Management Practices in Crude Oil Markets

Abstract

Financial risk management is not a contemporary issue. Financial risk management has been a challenge for as long as there have been markets and price fluctuations. The entire crux of risk management lies in detecting and mitigating risk. Crude oil has been an extremely volatile substance since ancient times, and crude oil price changes not only affect oil market traders, investors and consumers but also impact global economic activity and government policy. Crude oil is only the worlds most actively-traded commodity. Owing to its excellent liquidity and price transparency, crude oil contracts serve as a key international pricing benchmark. Therefore, it is essential to estimate and forecast the risk of changes in crude oil prices, particularly given the current delicate situation where price volatility is a key concern for not only all those connected with oil trade but even common man. The entire justification for the attempting this study is that todays financial domain knowledge has huge emphasis on risk management. But yet still we have scenarios in which there is considerable loss to companys and financial institution and substantial erosion of their market value on account of misappropriation of risk originating from various internal and external drivers of risk and successively failure to mitigate, control or hedge such risks. Thus, there is considerable need to bring to light various facets on the aspect of risk management in crude oil markets. Also inclusive has been the need to study and highlight the best practices that are used for handling the various risks and then measures to hedge them. The paper is an effort in this Direction.

Keywords: N.A.

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