What are contango and backwardation

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Reference no: EM132656400

Metallgesellschaft AG (MG)'s U.S. affiliate Metallgecellschaft Refining and Marketing Company (MGRM) that lost $1.3 billion on energy derivatives from 1991 to 1993.

1. What major risks did MGRM identify? What major risks did MGRM fail to identify?

2. What are contango and backwardation and why were they important to MGRM's situation? Why is there often backwardation in the oil markets?

3. What should the MG's board of directors have done differently? Did corporate governance fail?

4. Was MGRM hedging or speculating?

Reference

Kuprianov, Anatoli, Derivatives Debacles: Case Studies of Large Losses in Derivatives Markets (1995). FRB Richmond Economic Quarterly, vol. 81, no. 4, Fall 1995, pp. 1-39, Available at SSRN: https://ssrn.com/abstract=2129302

Reference no: EM132656400

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