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PRESENTED TO:-

RAHUL SIR

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CHARMI GALA 510

HIRAL RAVAL 532

CHARMI SHAH 536

FORAM SHAH 537

SHIKHA SHAH 545

HARSHITA VORA 553

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A physical substance, such as food, grains, and

metals, which is interchangeable with another product

of the same type, and which investors buy or sell,

usually through futures contracts.

More generally, a product which trades on a

commodity exchange; this would also include foreign

currencies and financial instruments and indexes.

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A financial instrument whose characteristics and value

depend upon the characteristics and value of an

underline asset, typically a commodity, bond, equity

or currency.

Examples of derivatives include futures and options

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The commodity derivatives market is a direct way to

invest in commodities rather than investing in the

companies that trade in those commodities.

For example, an investor can invest directly in a steelderivative rather than investing in the shares ofTata

Steel.

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NMCE

NCDEX

MCX

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NMCE is committed to provide world class services of

on-line screen based Futures Trading.

The NMCE has most major agricultural commoditiesand metals under its fold.

NMCE is promoted by commodity-relevant public

institutions.

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Multi Commodity Exchange (MCX) is an

independent commodity exchange based in India. Established in 2003 and Based in Mumbai

Turnover in 2009 was USD 1.24 trillion

Sixth largest commodity exchange

It was established in 2003 and is based in Mumbai.

MCX offers futures trading in

bullion, ferrous and non-ferrous metals, energy, and a

number of agricultural commodities (menthol oil,

cardamom, potatoes, palm oil and others).

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National Commodity & Derivatives Exchange

Limited (NCDEX) is a professionally managed

online multi commodity exchange. NCDEX is a public limited company incorporated on

April 23, 2003 under the Companies Act,1956.

NCDEX is regulated by Forward Market

Commission in respect of futures trading incommodities.

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India is among the top-5 producers of most of the

commodities, in addition to being a major consumer

of bullion and energy products.

It is important to understand why commodity

derivatives are required and the role they can play in

risk management

The possibility of adverse price changes in future

creates risk for businesses.

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Two important derivatives are futures and options.

COMMODITY FUTURES CONTRACT

COMMODITYOPTIONS CONTRACT

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A futures contract is an

agreement for buying or

selling a commodity for a

predetermined deliveryprice at a specific future

time.

They are Standardized

Contracts Traded in Future

Exchanges (Default is

taken care)

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Suppose a farmer is expecting his crop of wheat

to be ready in two months time, but is worried

that the price of wheat may decline in this period.In order to minimize his risk, he can enter into a

futures contract to sell his crop in two months

time at a price determined now. This way he is

able to hedge his risk arising from a possibleadverse change in the price of his commodity.

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Like futures, options are also

financial instruments used for

hedging and speculation.

The commodity option holder

has the right, but not theobligation, to buy (or sell) a

specific quantity of a

commodity at a specified price

on or before a specified date.

The option holder will

exercise the option only if it is

beneficial to him; otherwise he

will let the option lapse.

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For example, suppose a farmer buys a put option to sell 100 Quintals

of wheat at a price of $25 per quintal and pays a premium of $0.5 per

quintal (or a total of $50). If the price of wheat declines to say $20

before expiry, the farmer will exercise his option and sell his wheat at

the agreed price of $25 per quintal. However, if the market price of

wheat increases to say $30 per quintal, it would be advantageous for

the farmer to sell it directly in the open market at the spot price, rather

than exercise his option to sell at $25 per quintal.

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AGRICULTURAL

PRODUCTS:-

NON-AGRICULTURAL

PRODUCTS:-

Plantation Products

Spices

Pulses

Fibers

Cereals

Oil and Oil seeds

Others

Metals

Energy

Precious Metals

Others

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They just speculate on the direction of the price of

these commodities, hoping to make money if the price

moves in their favor.

The commodity derivatives market is a direct way to

invest in commodities rather than investing in thecompanies that trade in those commodities.

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Suppose an importer imports 6000tonnes of chana @ spot price Rs2000/ tonne in January. so hw can we hedge our risk?

In futures exchange the price of chana in January Rs 2050/tonne.Theimporter book his profit for the futures contract for February.

If in February the spot price of chana rises to rs2100/tonne then hewill have profit in physical market but he would have loss in futuresexchanges.

Suppose the spot price of chana in February decreases to rs 1950/

tonne. Then he will have the loss in physical market but we wouldhave profit in the future market.

Whatever the case may be the prices of chana increases or decreasesthe importer hedges his risk and book the profits of rs 50/tonne.

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Supposedly, the cost of gold is Rs 6000 per 10 grams, with an investment ofRs 6 lacs; one can buy 1kg of gold.

Now, suppose, three months later, when the price of gold is Rs 6,500 per 10grams, the person decides by selling the gold makes a gross profit of Rs

50,000. To arrive at the net profit, one would have to deduct; the cost of storage in a

bank, the cost of financing and transaction costs, including the sales taxes.

To trade in gold futures, an individual has to go to a brokerage house andopen a trading account. An initial deposit of Rs 50,000 to Rs 1 lacs is paid.

One can gain from a futures market even by having a view on the price ofgold.

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Assume in June a farmer expects to harvest at least 10,000 bushels ofsoybeans during September. By hedging, he can lock in a price for hissoybeans in June and protect himself against the possibility of fallingprices.

The time, the cash price for new-crop soybeans is $6 and the price ofNovember bean futures is $6.25. The delivery month of November marksthe harvest of new-crop soybeans.

The farmer short hedges his crop by selling two November 5,000 bushelsoybean futures contracts at $6.25.

By the beginning of September, cash and futures prices have fallen. Whenthe farmer sells his cash beans to the local elevator for $5.72 a bushel, helifts his hedge by purchasing November soybean futures at $5.95. The 30-cent gain in the futures market offsets the lower price he receives for hissoybeans to the cash market.

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Cash Futures

June Price for Sells 2 November

new-crop soybeans at soybean contracts

. /bushel at .2 /bushel

September Sells 1 , bushels Buys 2 November

soybeans at soybean contracts at

.72/bushel .9 /bushel

Result

Cash sale price

.72/bushel

Futures gain +

.3 /bushel

Net selling price

. 2/bushel

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Commodity Derivatives Market

- N. J. Rao

Commodity Derivatives

- Indian Institute of Banking And

Finance

Commodity Derivatives

- Indian Institute of Material M

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www.investiopidia.com

www.ncdex.com

www.mcxindia.com

www.bseindia.com

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