Summary of Annotations

Page 369

#1 Highlight

commodity may be defined as an article, a product or material that is bought and sold. It can be classified
as every kind of movable property, except Actionable Claims, Money & Securities.

Page 370

#1 Highlight

The commodity derivative market is a direct way to invest in commodities rather than investing in the
companies that trade in those commodities

#2 Highlight

. Commodity futures markets allow commercial producers and commercial consumers to offset the risk of
adverse price movements in the commodities that they are selling or buying.

#3 Highlight

High co-relation with changes in inflation.

#4 Highlight

A good hedge against any downturn in equities or bonds as there is little correlation with equity and bond
markets.

#5 Highlight

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures market

#6 Highlight

Forward Contracts

#7 Highlight

Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC) was established in
1953 under the Ministry of Consumer Affairs and Public Distribution. In due course, several other
exchanges were created in the country to trade in diverse commodities.

#8 Highlight

Ministry of Consumer Affa

#9 Highlight

FMC

#10 Highlight

Commodity Exchanges

Page 371

#1 Highlight

Consequently four commodity exchanges have been approved to commence business in this regard. They
are: Multi Commodity Exchange (MCX) located at Mumbai. National Commodity and Derivatives Exchange
Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore. National Multi
Commodity Exchange (NMCE) located at Ahmedabad.

#2 Highlight

Commodities: Coffee, Cocoa, Sugar et

#3 Highlight

ive-Stock: Live Cattle, Pork Bellies etc

#4 Highlight

Energy: Crude Oil, Natural Gas, Gasoline etc

#5 Highlight

ecious Metals: Gold, Silver, Platinum et

#6 Highlight

Other

#7 Highlight

her Metals: Nickel, Aluminum, Copper etc

#8 Highlight

gro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds.

#9 Highlight

National Exchanges
#10 Highlight

NMC

#11 Highlight

MCX

#12 Highlight

NCDEX

#13 Highlight

Regiona

#14 Highlight

Exchange

#15 Highlight

l Exchange

#16 Highlight

NB

Page 372

#1 Highlight

cts: A futures contract is an agreement for buying or selling for a p

#2 Highlight

Commodity futures contrac

#3 Highlight

edetermined delivery price at a specific future time.

#4 Highlight

ommodity options contracts

#5 Highlight

1. Leverage:
#6 Highlight

2. Commissio

#7 Highlight

3. Liqu

#8 Highlight

Liquidity: T

#9 Highlight

4. Ability to go short

#10 Highlight

5. No time delay: O

#11 Highlight

Leverage: Low margin requirements can encour

#12 Highlight

encourage poor money management, leading to excessive risk taking. Not only are profits enhanced but
so are loss

Page 373

#1 Highlight

Due to the bulky nature of the underlying assets, physical settlement in commodity derivatives creates the
need for warehousin

#2 Highlight

Similarly, the concept of varying quality of asset does not really exist as far as financial underlyings are
concerned. Ho

#3 Highlight

However in the case of commodities, the quality of the asset underlying a contract can vary largely. This
becomes a

#4 Highlight

of the asset underlying a contract can vary largely. This becomes an im

#5 Highlight

s an important issue to be managed