Suppose you are a risk management professional working for iManageRisk firm which is located in Singapore. iManageRisk provides consulting services to firms such as airline companies and mining companies on their risk management. Mr. Robert Lee, the treasurer of Gemoil Pte Ltd, approaches you today (assume it is now July 2019) to ask you for advice on the financial risk management of his company.

Gemoil (Singapore) Pte Ltd is a trading company which specializes in international trade of petrochemicals and petrochemical equipment. In recent years, Gemoil mainly deals in crude oil, gasoil, diesel oil and fuel oil, with plans to increase its size and valuation over the next few years. Gemoil is a growth company that aims to a growing cash flow from expanding oil trading operations

The companys profit and loss is subject to many risk factors, such as the price change of oil and foreign exchange rate fluctuations. The company will benefit US$900 for each 1 cent increase in the price per bbl of oil. As the market price of oil is quite volatile, the company is considering using some strategies to manage its risk exposure. One way to hedge these exposures is to use futures contracts. There are futures contracts traded in the COMEX division of the Chicago Mercantile Exchange (CME) Group.

Robert is concerned with the use of derivatives. He has heard from his long-term friend, Mr MF, who graduated with a Master of Finance degree from RMIT University, on the dangers of misusing of derivatives products such as futures to firms. Mr MF also mentioned that derivatives pose a danger to the whole financial system, and thus they should be banned. Recently a complex derivatives trade has caused over $5 billion losses at J.P. Morgan. Above all, an investment guru, Warren Buffett, once referred derivatives to as time bombs and financial weapons of mass destruction (details can be found in the Appendix). In your report, please address his concerns. And you also need to address whether the company like Gemoil should use derivatives. Please use some source materials (such as academic journal articles and newspaper articles) to support your arguments in your report. Follow a proper referencing and citation style.