Group10_CorpFin_CommodityMarketsPPT

8/12/2019 Group10_CorpFin_CommodityMarketsPPT

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Section A - Group 10TANMAY AGARWAL12P008ARCHIT SHUKLA12P011

DAMAN AGARWAL12P017PRERAK GOEL 12035

SAURABH MISHRA12044SUDIPTO GHOSH - 12054

PGPM Term III

CORPORATE

FINANCE


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Basic or Primary Goods Hard Commoditiesmined or extracted

Soft CommoditiesAgricultural products orlivestock

Commodity

Where Commodities areexchanged

Brought and Sold inStandardized Contracts

Commodity

Markets Agreed standardsestablished upon whichgoods can be bought andsold without visualinspection

StandardizedContracts


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Hedgers

Have a position in theunderlying commodity

Objective to limit therisk associated with an

adverse price change

Speculators

Trading of own funds

To express opinion orgain financialadvantage from marketmovement


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Spot TradingForwardTrading

Futures Trading

MUST BESPECIFIED

Delivery

Day

Method of

Settlement

Delivery

Point

Ideally, Trading must be stopped two

days prior to the delivery dayTo

finalize the routing of the shipment


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Buying and selling of physical goods on the spot

Actual exchange of goods takes place at the timeof trading.

Usually takes place in a physical marketplace suchas a wholesale market.


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An agreement between twoparties to exchange a

commodity on a future dateat a pre decided price

The fixed price today isknown as the Forward Price


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Similar to forward contracts, but withstandardized product, grade, quantity and

location of exchange.

The parties to transaction can negotiate onprice.

The contract can be sold to a third party fora price.

Most of the futures contract takes place atvirtual marketplaces called exchanges.


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Special types of futures contract where the holders of the futurecontracts have an option but no obligation to exercise the contract.

Call Option

Agreement thatgives an

investor the right(but not the

obligation) tobuy a stock,

bond,

commodity, orother instrumentat a specifiedprice within aspecific time

period

A agrees to buya commodity

from B at Rs 110at a future date

with a calloption. The

commodity iscurrently pricedat Rs 100. So Apays Rs 10 as

premium to B.

If the actualprice of

commodity issay Rs 130,then A will

exercise theoption and make

a profit of Rs20,but if the

price falls to Rs90, then A willNOT exercise

his option. A willlose only Rs 10

he paid as apremium

Put Option

Agreement thatgives an

investor the right(but not the

obligation) tosell a stock,

bond,

commodity, orother instrumentat a specifiedprice within aspecific time

period

A agrees to sella commodity toB at Rs 100 at afuture date with

a call option.

Since B is takinga risk, hecharges a Fee,

say Rs 10

if the actualprice of

commodity issay Rs 80, thenA will exercisethe option and

sell thecommodity to B

for Rs 100. Amakes a profit of

Rs 10 (afterdeducting thefee paid) but if

the price rises toRs 130, then A

will NOTexercise hisoption. A will

lose only Rs 10he paid as a fee.


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India

Constitution of the Bombay Cotton TradeAssociation 1875

Forward Contracts (Regulation) Act,1952. The regulator is the ForwardMarkets Commission (FMC)

National Commodity & DerivativeExchange - Agricultural Commodities,Multi Commodity Exchange - Metals andEnergy contracts, National Multi

Commodity Exchange of India - Spicesand Plantation crops

Maximum traded commodities Gold,crude oil and silver.

USA

Started in 1848 with the establishment ofthe Chicago Board of Trade (CBOT)

The principal regulator is the CommodityFutures Trading Commission . NationalFutures Association that enforces rulesand regulations . Commodity ExchangeAct 1936, Commodity FuturesModernization Act 2000

Interest rates, equities, currencies, and

commodities, weather and real estatederivatives are traded at CME

Maximum traded commodities - CrudeOil and its derivatives, coffee, wheat,corn, maize, oats, rice, soybeans


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Group10_CorpFin_CommodityMarketsPPT

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