Business Case Studies & Business Publications

Northern Textiles Limited (A)

Varma, Jayanth R, ...

Case

Northern Textiles Limited (A)

Varma, Jayanth R; Ghosh, Rahul

IIMA-FA0559(A) | Published October 27, 2020 | 22 pages Case

Collection: Indian Institute of Management, Ahmedabad

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Northern Textiles (NTL) used highly complex derivatives to hedge its currency risk, and these structured products have been profitable in the past. But in 2008, unanticipated movements in exchange rates have led to serious losses. Seth, the Chairman of NTL, has come to know about the losses on a specific deal, but the Treasurer has ensured that he is the only person who understands the derivative book in its entirety. Though Seth is not aware of how grave the problem is, he realizes that he must review NTL's risk management policies and perhaps even replace the CFO.

Evaluate the risks of complex derivatives products. Understand the control issues in a treasury which is run as a profit centre.