By: Muhammad Sumair Jawed
This article sheds light on the potential of commodity derivatives in Pakistan. It explores the critical success factors and it’s negative consequences given the overall Pakistani Environment.
Today everyone is talking about derivative instruments as not only a source of hedging but also a profit making instrument and in derivatives the most frequently used instruments around the world are futures, may be because of its simplicity and easily understood by masses. By definition futures are basically Contracts which gives the obligation to buy or sell the underlying asset at a predetermined price which is set today and the transaction will be settled at a future date. Future contract are obligatory contracts so they have to be realized in any case. When we say underlying asset, that underlying asset could be anything and when it is commodity (Goods which have demand) then it becomes a commodity futures (Carter ,2007). This article argues why commodity futures have a great potential in Pakistan and it also examine the consequences of commodity futures on the overall market (Teweles et.al,1974). Currently in Pakistan, commodity futures are still in preliminary stage but there is a formal exchange for commodity futures with a name of ¨Pakistan Mercantile Exchange. Pakistan Mercantile Exchange offer futures in Gold,Silver,Crude Oil, Palm Olien,Rice and Sugar and their are different types of contracts of commodity futures available for each category like in gold has eight contracts namely Gold 1 ounce, Gold 100 ounce, Gold 1 Tola, Gold 50 Tola, Gold 100 tola, Gold Kilo, Gold 100 gms, and Minigold 10 gms. Tola gold and minigold are deliverable contracts(Herbst,1986).
Now a day the news in the market is that soon in Pakistan, there are futures available virtually for all the commodities especially of consumer commodities, now this make commodity future even more attractive...