Hedging price risk through commodity derivatives: a case of Sethi Jewellers
Publication date: 8 April 2024
Abstract
Learning outcomes
After completion of the case study, the students will be able to understand the different risks associated with a business, focusing on price risk and the importance of price risk management in business; understand and evaluate the products available for hedging price risk through exchange-traded derivatives in the Indian scenario; and understand and evaluate the different strategies for price risk management through exchange-traded derivatives in the Indian scenario.
Case overview/synopsis
The case study pertains to a small business, M/s Sethi Jewellers. The enterprise is being run by Shri Charan Jeet Sethi and his son Tejinder Sethi. The business is located in Jain Bazar, Jammu, UT, in Northern India. The business was started in 1972 by Charan Jeet’s father. They deal in a wide range of jewelry products and are well-established jewelers known for selling quality ornaments. Tejinder (MBA in marketing) was instrumental in revamping his business recently. Under his leadership, the business has experienced rapid transformation. The business has grown from a one-room shop fully managed by Tejinder’s grandfather to a multistory showroom with several artisans, sales staff and security persons. Through his e-store, Tejinder has a bulk order from a client where the client requires him to accept the order with a small token at the current price and deliver the final product three months from now. Tejinder is in a dilemma about accepting or rejecting the large order. Second, if he accepts, should he buy the entire gold now or wait to buy it later at a lower price? He is also considering hedging the price risk through exchange-traded derivatives. However, he is not entirely sure, as he has a few apprehensions regarding the same, and he is also not fully aware of the process and the instruments he has to use for hedging the price risk on the exchange.
Complexity academic level
The case study is aimed to cater to undergraduate, postgraduate and MBA students in the field of finance. This case study can be used for students interested in commodity derivatives, risk management and market microstructure.
Supplementary materials
Teaching notes are available for educators only.
Subject code
CSS 1: Accounting and finance.
Keywords
Acknowledgements
Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision-making. The authors may have disguised names; financial and other recognisable information to protect confidentiality.
The authors acknowledge the anonymous reviewers for their helpful insights on the case study. The infrastructural and financial support provided by the FORE School of Management, New Delhi in completing this case study is greatly acknowledged
Citation
Soni, T.K. (2024), "Hedging price risk through commodity derivatives: a case of Sethi Jewellers", , Vol. 14 No. 2. https://doi.org/10.1108/EEMCS-06-2023-0228
Publisher
:Emerald Publishing Limited
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