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Matallgesellschafts Hedging Debacle - Case Study Example

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This paper, Matallgesellschaft’s Hedging Debacle, stresses that the main objective of the hedging strategy was to insulate the firm from rise in energy prices. If this was to happen, that is increase in prices of energy, the firm was supposed to earn huge profits from it. …
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Matallgesellschafts Hedging Debacle
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Download file to see previous pages This discussion highlights that the action taken by the board was a clear sign of panic from their side; the board replaced MG’s top management and liquidating the firm’s derivative position and forward supply contracts. These actions clearly portray a board on panic since it did not take time to reconsider other options available. It was not the fault of the top management that oil prices fell thus sacking them would not change a thing. The new top managers appointed did nothing to reverse the situation; instead, they declared the speculative oil prices as the cause of the huge losses incurred by the firm. The case ends with an end to the firm’s involvement in the oil market but not a solution that would improve the firm’s position in the oil market.

This study discusses that there is a high possibility that the firm’s board did not understand the full implication of the hedging strategy. The strategy was to hedge against rise in prices of oil products in the market. Incase prices went up; the firm stood a chance of making a good profit. However, loss was an inevitable part of the strategy that was not considered early in advance. If the board understood the whole hedging strategy, it would have reconsidered before ending the firm’s involvement in the oil market. Possibly, it would have found ways to minimize losses as they await oil prices to pick in future to enable the firm recover the loss and possibly make profits. ...Download file to see next pagesRead More
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