The Role of Financial Derivatives in Risk Mitigation in Nigerian Corporations: A Case Study of Oando Plc
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Background of the Study
Financial derivatives, including options, futures, swaps, and forwards, are critical tools for managing financial risks in corporations. In Nigeria, corporations like Oando Plc use derivatives to hedge against risks such as oil price volatility, foreign exchange fluctuations, and interest rate changes. Derivatives enable firms to stabilize cash flows, protect profit margins, and enhance financial planning.
Oando Plc, a leading energy company, faces significant exposure to global oil price volatility due to its operations in exploration, production, and trading. By leveraging financial derivatives, the company seeks to mitigate these risks and ensure operational stability (PwC Nigeria, 2023).
This study explores the role of financial derivatives in risk mitigation at Oando Plc, providing insights into their effectiveness and implications for corporate risk management.
Statement of the Problem
Despite the benefits of financial derivatives, many Nigerian corporations underutilize these instruments due to limited expertise, regulatory challenges, and market constraints. For Oando Plc, effective risk management through derivatives is essential to navigate volatile global markets and maintain profitability.
The lack of empirical studies on the application and impact of derivatives in Nigerian corporations creates a knowledge gap. This study addresses this gap by analyzing Oando Plc’s use of financial derivatives.
Objectives of the Study
- To examine the role of financial derivatives in mitigating risks at Oando Plc.
- To assess the challenges faced by Oando Plc in utilizing financial derivatives.
- To propose strategies for optimizing the use of financial derivatives in Nigerian corporations.
Research Questions
- What role do financial derivatives play in mitigating risks at Oando Plc?
- What challenges does Oando Plc face in utilizing financial derivatives?
- What strategies can optimize the use of financial derivatives in Nigerian corporations?
Research Hypotheses
- Financial derivatives do not significantly mitigate risks at Oando Plc.
- Challenges in utilizing derivatives do not significantly affect risk management at Oando Plc.
- Strategies to optimize derivative use do not significantly improve risk mitigation in Nigerian corporations.
Scope and Limitations of the Study
The study focuses on the use of financial derivatives by Oando Plc from 2010 to 2025. Limitations include access to proprietary financial data and the evolving regulatory environment for derivatives.
Definitions of Terms
- Financial Derivatives: Financial instruments whose value is derived from underlying assets such as commodities, currencies, or interest rates.
- Risk Mitigation: Measures taken to reduce the impact of financial risks.
- Oil Price Volatility: Fluctuations in global crude oil prices affecting revenues and costs.
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