Futures Contract and Commodity Exchange

Topics: Futures contract, Chicago Board of Trade, Commodity market Pages: 56 (13036 words) Published: May 31, 2012



|Chapter No |Topic |Page No. | |1 |Introduction to Commodity Market |04 | |2 |History of Evolution of Commodity Markets |08 | |3 |India and the Commodity Market |10 | |4 |International Commodity Exchanges |15 | |5 |How Commodity Market Works? |17 | |6 |How to Invest in a Commodity Market |19 | |7 |Current Scenario in Indian Commodity Market |23 | |8 |Commodities |28 | |9 |Analysis |38 | | |ANNAXTURE |47 | | |Summary |55 | | |Bibliography |56 |

Chapter 1

Introduction to Commodity Market

What is “Commodity”?
Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property other than actionable claims, money and securities”. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities which include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and un-ginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea, rubber and spices. Etc.

What is a commodity exchange?
A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority.

What is Commodity Futures?
A Commodity futures is an agreement between two parties to buy or sell a specified and standardized quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange. The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons:

Consumer Preferences: - In the short-term, their influence on price volatility is small since it is a slow process permitting...
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