To review and suggest a hedging strategy for Cairn India

Abstract

Over the past 25 years, the use of financial derivatives to manage risk has evolved and every corporate to hedge their risks. Risk arises due to uncertain future and the different types of risks a company is exposed to include. • Interest Rate Risk • Exchange Rate Risk • Credit Risk • Commodity Risk Managers often dislike risk and as profit of the company in an uncertain future might experience high levels of volatility. Hence they hedge their respective risks using financial instruments. According to the accounting standards a financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Derivative products are financial products used to hedge exchange rate risk.