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CHAPTER 1

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Introduction
Commodities have always been a part of our day to day existence as one
of the finest investment avenues available. But we have been unaware of them. The
wheat in our bread, the Cotton in our clothes, our gold jewels, the oil that runs our
cars, etc,are all traded across the world in major exchanges.

India has a long history of trade in commodity derivatives; this sector


remained underdeveloped due to the control over and intervention in commodities
prices by the government for many years. The production, supply and distribution of
many agricultural commodities are still governed by the state and forwards and futures
trading are selectively introduced with stringent controls. Free trade in many
commodity items is restricted under the Essential Commodities Act, 1955 and the
Agriculture Productive Marketing Committees Acts of the various state governments.

The Bombay Cotton Trade Association set up the first commodity


exchange in India and formally organized futures trading in cotton in 1875.
Subsequently, many exchanges came up in different parts of the country for futures
trading in various commodities. The Gujarati Vyapari Mandali came into existence in
1900, which undertook futures trading in oilseeds for the first time in the country. The
Calcutta Hessian exchange ltd and the East India Jute Association Ltd were set up in
1919 and 1927 respectively for futures trade in raw jute. A future trading in cotton was
organized in Mumbai under the auspices of East India cotton Association in 1921.
Simultaneously, several exchanges were set up in major agricultural centers in North
India before the World War broke out and they were mostly engaged in wheat futures

until it was prohibited in 1921.

The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etc


were established during this period. The Government of India banned trading in
commodity futures in the year 1966 in essential commodities. As a result of this, all the
commodity futures in the year 1966, in order to have an effective control over the
Khusro Committeee in 1980, the Government, reintroduced futures trading in some
selected commodities. As a result of this, all the commodity exchanges went out of
business and many trades started resorting to unofficial and informal trading in futures


The journal of accounting and finance volume 20. No. 2
2
On the recommendation of the Khusro committee in 1980, the Government
reintroduced futures trading in some selected commodities including cotton, jute
potatoes etc. As a part of economic reforms, the government of India appointed an
expert committee on forward markets under the chairmanship of K N Kabra in the year
1993.

The committee submitted its report in 1944 and recommended for the
reintroduction of futures, with a wider coverage of and scope for more agricultural
commodities. In order to give a thrust to the agricultural sector, the National
Agricultural Policy 2000 envisaged external and domestic market reforms and the
dismantling of all controls and regulations on the agricultural commodity market. It
also proposed enlargement of the coverage of futures market to reduce wide
fluctuations in commodity prices and for hedging the risk arising from price
fluctuations.

In the budget speech delivered on 28 February 2002, the then


Finance Minister announced an expansion of futures and forward trading to cover all
agricultural commodities. This was followed by the removal of the ban on futures
trading on 27 (out of 81 items) in oilseeds, oils and their cakes in August 2002.
Subsequently, in February 2003, the Government removed the prohibition on the
remaining 54 commodities also under the Forward trading in general and the
agricultural sector in particular, The Securities Contracts (Regulation) Act, 1956, was
also amended in August 2003 to provide for commodity derivatives Exchange
(NCDEX ) and Multi Commodity Exchange (MCX), Mumbai,
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National status was given to these exchanges so that they would be


automatically permitted to conduct futures trading in all commodities subject to the
clearance of by laws and contract specifications by the FMC, While the NMCE,
Ahmedabad commenced futures trading in November 2002, MCX and NCDEX,
Mumbai commenced operations in October and December 2003 respectively.

Over the ages, commodities have been the basis for trade and industry.
They have spurred commerce, encouraged exploration and altered the histories of
nation. Today they play a very important role in the world economy with billion of
dollars of these commodities traded each day of exchanges across the world, so much

Evolution of futures trading Indian economy
3
so that today the commodity market are roughly 4-5 times the size of the equity market,
where ever they are actively traded.

Futures trading play a key role in the marketing of many important


agricultural commodities and their products. And yet this institution is still perhaps “the
least understood and often the most condemned part of the entire marketing system.” In
our own country as well as in those like the U.S.A. and the U.K., where active Futures
markets exist, a theoretical debate has been going on for quite some time as to their role
and functions. Much of the discussion has naturally centered on the Effects of futures
trading on prices. Some affirm that it helps to stabilize prices while others argue that
because of the existence of speculation which is inherent in it; its price effects are often
destructive. Little empirical evidence, however, has yet been produced in support of
either view. The present study is a modest attempt in that direction.

Trade in commodity futures contracts via the organized exchanges


currently seen in the United States goes back to the 1860s. The basic concept is much
older. There are records of trade in contractual obligations, similar to the modern day
futures contracts, in China and Japan in earlier centuries.

The current widespread and growing interest in commodity futures


emerged during the 1970s. Extreme price variability in the grains, oilseeds, fibers, and
livestock commodities brought with it a sense of urgency and a need for mechanisms to
manage age exposure to price risk. Instability in the economy late in the decade and
into the early 1980s brought double-digit inflation, a prime interest rate that exceeded
20 percent, and widespread uncertainty. Farm policy moved away from approaches that
pegged specific prices for key agricultural commodities and toward a posture that
would allow U.S. prices to trade in futures contracts for such diverse items as the
agricultural commodities, treasury bills, lumber, foreign currencies, copper, and heating
oil.

Options on futures contracts can remove two related and major barrier to
the use of commodity futures in the forward-pricing of agricultural commodities. The


Basics of commodity futures page no 6. chapter 6
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first is the producer’s constant fear that forward prices of future sales have been set too
low or that forward prices (i.e., costs) of futures purchases have been set too high.

Producers often equate bad outcomes, in terms of opportunity costs, with


bad decisions. Even if the forward price established is profitable, there is a tendency for
producers to view the hedge set early at relatively low prices (or at relatively high
costs) to be a bad decision. If the futures side of the hedge loses money, the Tendency
is to view the hedge as a mistake and to talk about losing money with the hedge.

Second and related barrier to direct use of the futures markets is the need to

manage a margin account and answer margin calls as the market rallies against a short
position in the futures. Neither producers nor their lenders have always understood the
need for a special and additional credit line to answer margin calls. There are countless
examples of producers being forced to offset short hedges due to the inability or lack of
a willing creditor to provide the needed margin funds. Often, the market turns lower
after the upward price move that forced the producer to offset the short hedges. A loss
is incurred in the futures account and than the producer is without price protection as
the market turns and trends lower.

In the budget speech delivered on 28 February 2002, the then Finance


minister announced an expansion of futures and forward trading to cover all
agricultural commodities. This was followed by the removal of the ban on futures
trading on 27 (out of 81 items) in oilseeds, oils and their cakes in August 2002.
Subsequently, in February 2003, the Government removed the prohibition on the
remaining 54 commodities also under the Forward Contract (Regulation) Act, 1952,
thus removing the statutory hurdles in futures trading in general and the agricultural
sector in particular. The Securities Contracts (Regulation) Act, 1956 was also amended
in August 2003 to provide for commodity derivatives.

Soon thereafter, the Forward Markets Commission granted


permission to three national multi-commodity exchanges via National Multi-
Commodity Exchange of India Ltd. (NMCE), Ahmedabad, National Commodity &
Derivatives Exchange (NCDEX) and Multi-commodity Exchanges (MCX), Mumbai.

Robert E Fink and Robert B Feduniak, Futures trading ; New york, institute of finance
5
National status was given to these exchanges so that they would be
automatically permitted to conduct futures trading in all commodities subject to the
clearance of bylaws and contract specification by the FMC. While the NMCE,
Ahmedabad commenced futures trading in November 2002, MCX and NCDEX,
Mumbai commenced operation in October and December 2003 respectively.

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CHAPTER 2

2.1 Introduction

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Unknown to us the commodities that have always been a Part of our day
to day existence are also one of the finest Investment avenues available. The wheat in
our bread, the Cotton in our cloths, our gold jewels, the oil that runs our cars, etc; are
all trades across the world in major exchanges.

Over the ages, commodities have been the basis for trade and industry. They
have spurred commerce, encouraged exploration and altered the histories of nation.
Today they play a very important role in the world economy with billion of dollars of
these commodities traded each day of exchanges across the world, so much so that
today the commodity market are roughly 4-5 times the size of the equity market, where
ever they are actively traded.

2.2 Statement of the problems


Primary commodity prices and their markets are known to behave
differently from those of the manufactured goods or services. Theoretical analysis
suggests that commodity prices will fall relative to others because of the inelastic
demand.

Thus, the real income of the commodity producers falls because


inelastic demand prevents them from offsetting price movements with volume changes.
The prime reason for extra volatility in commodity prices in the presence of natural
shocks that are not predictable and mostly relate to the previous year’s production or
consumption in price, followed by a slow or rapid reduction depending on the nature of
the commodity. Commodity price cycles mostly have flat bottoms with occasional
sharp peaks.

The following are four important commodity price problems:

a) Short-term fluctuations: These are common among the agriculture products,


either within a year due to seasonal variations or from year to year because of
abnormal weather variations and conditions.
b) Medium-term changes: As seen often in oil or other mineral markets,
responding to multi-year business cycles in the world economy.

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c) Permanent changes: These are affecting one or a few countries owing to
technological changes or the discovery of a new technology which alters
competitiveness.

d) Long-term declining commodity prices: Normally, the behavior of commodity


prices well is short-term in nature and show a sudden rise or fall and this
asymmetric behavior tends to impose costs on any scheme meant for balancing
price fluctuations. All this exposes producers to the dual problem of lower
returns and higher risks.

2.1 Need of the study

There have been a large number of studies made in the field of investment and
creation of portfolios. All the studies made are in reference with income levels in
general. Income levels even though same but the field of work and the life style of a
particular segment differ from others, which in turn affects the saving and investment
priorities.

2.3 Review of literature


Futures trading are a device for protection against the price
fluctuations which normally arise in the course of marketing of commodities. Stockiest,
processors and manufacturers utilize the futures contract to transfer the price risk faced
by them. This use of the futures market is commonly known as hedging.

A futures contract is a highly standardize contract, which is


invariably entered into for the ‘basis’ variety, but against which other varieties within a
stipulated range can also delivered with appropriate premier or discounts for the
differences in their qualities from the ‘basis’ during a period which, in futures market
parlance, is called the delivery month. Wherever a futures market is organized, two
markets operate side by side, viz., the spot and the futures.
For purposes of hedging, those who have bought stocks and are,
therefore, long in the ready market sell in the futures market while those who have sold
the actual commodity and are shorts in the ready market are buyers in the futures
market.

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Benefits of review of literature

As the study is being formulated on general public it is very much essential to


understand the elements that affect this segment and what are the criteria that this
segment follows to safeguard their commodity future.

Review of Literature helped in understanding preferences and the outlook of


general public towards investment. At the same time the theory also helped in
understanding the concept of portfolio creation.

The review of literature was beneficial for the successful completion of the
project work and to carry out the survey in the right direction. The literature review
updates the knowledge of the researcher on portfolio creation techniques and the need
of the individual. It benefited in the learning of the profile of the respondents and their
preferences.

2.4 Scope of the study


This study focuses on futures alone among derivative. Among futures,
only commodity future has been assessed.

The main focus on potential investors and those who invest regularly
commodity futures there return, risk and expectation towards commodity futures of this
study is to asses

To examine the various risk factors in using commodity futures by inflation


and price fluctuation, and to evaluate the future trading on price and price variation

2.5 Objectives of the study

1. To examine the various risk factors in using commodity future.

2. To study the influence of futures trading, on price and price variation

3. To evaluate the effectiveness of the various measures of commodity futures as


investment avenues in India

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2.6 Hypothesis statement:
Testing: For hypothesis testing ‘Chi square’ test is used. The total no of
respondents who are involved in the survey are 60 out of which 45 respondents are
regular investors in commodity futures remaining 15 were potential investors
Hypothesis to be tested:

 Ho-Commodity futures are not excellent vehicle for investment

 Hi-Commodity future are excellent vehicle for investment

2.7 Methodology

According to Clifford woody research comprises of “defining, redefining


problem, formulating hypothesis or suggested solution, collecting, organizing and
evaluating data, making deductions and reading conclusions to determine whether they
fit the formulating hypothesis.”

It is a way to systematic solution of the research problem. The researcher needs


to understand the assumption underlying various techniques and procedures that will be
applicable to certain problem. This means that it is necessary for the researcher to
design its methodology.

There are various factors such as the personal factors as well as the market
factors that motivate a person to save and invest. Thus, the questionnaire will be
directed towards the respondents to give the feed back about their savings interest and
the various investment opportunities they are aware about and it also give respondents
to rethink about their investment criteria and upgrade it to maximize their returns.

7.1 Sampling

All items under study in any field of survey are known as a universe or
population. A complete enumeration of all items in the population is census enquiry,
which is not practically possible. Thus sample design is done which basically refers to
the definition plan defined by any data collection for obtaining a sample from a given

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population.

7.2 Sampling Technique

This study is purposive in nature as the research is concentrating on the various


issues that are related to general investment avenue .Research is not trying to reach a
conclusion by making any assumption and findings are based on the responses of the
respondents that enrich our database with a focus on the creation of certain portfolios in
general investment avenue

Convenient Sampling approach is adopted here. This is due to the fact that the
respondents were available only at the colleges and only at the duty time, to get the
clear idea of their approach the nearest colleges were selected and the study was made.

7.3 Sampling unit

The sample size consists of different units like businessman, professionals,


government employees, and private employee’s .others and head of departments of
various streams. Thus the population selected was of faculties consisting of both males
and females of different age groups, holding different qualifications.

7.4 Sampling size


The sample size consists of 60 respondents of various financial institutions. The
sample size is drawn using convenience sampling method.

7.5 Sample design

Sample design or sample procedure refers to a definite plan followed for the
collection of sample from a given population. The process followed was, firstly a
questionnaire was prepared with the objective in mind. The respondent from various
financial institutions were determined. The second step includes convenience sampling
whereby the selected population was considered and the questionnaire was
administered.

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7.6 Instruments

An open-ended questionnaire has been administered, supported by a personal


interview to draw detailed explanations on the investment pattern. The instrument used
to collect the data from primary source is structured questionnaires which consist of
number of questions printed in a systematic form. Information was collected from
regular investors and potential investors.

7.7 Tools for data collection

In dealing with real life problems it is often found that data at hand are
inadequate, and hence, it becomes necessary to collect data that are appropriate. The
data can be of two types- Primary data and Secondary data.

In this study the Primary data is collected by means of personnel


interview with the help of questionnaires which is designed in such a manner that the
faculties of all streams can use it easily.

The secondary data are those data which already exist. This data is also an
important input for the study, and in this case the secondary data is collected from
various records, magazines, text books, internet, discussion with various in house
faculties etc.

7.8 Limitations of the study

 Only a percentage of total investors in each financial institute could be


interviewed but the analysis is generalized.

 Some of the potential investors were reluctant to disclose their financial data
and the personal details.

 The findings and conclusions drawn out of the study will reflect only existing
trends in the sector.

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 The accuracy and authenticity of the observations made and conclusions drawn
largely depend upon the corresponding accuracy and authenticity of the
information supplied by the respondents at large.

The respondents being investors, who are basically very busy people,
most of them were in hurry during the survey. So some errors may have occurred in
filling of the questionnaires.

7.9 Plan of the analysis

The data collected through questionnaire and the secondary data available was
examined in detail; it was further classified and tabulated for the purpose of analysis to
generalize percentages.

Based upon the information and objectives of the study, conclusions


were drawn, suggestions and recommendations are made which can be used in
providing appropriate training and development programs. Graphs and Charts have
been used wherever necessary.

The tabulated data is being graphically represented for the better analysis.

Software use for data analysis


• MS Word
• MS Excel
• SPSS

Factor analysis

Factor analysis is a general term for several specific computational


techniques. All have the objective of reducing to a manageable number many variables
that belong together and have overlapping measurement characteristics.

The predictor- criterion relationship that was found in the dependence


situation is replaced by a matrix of inter correlations among several variables, none of
which is viewed as being dependent on another. For example, one may have data on
100 employees with scores on six attitude scale items.

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Method

Factor analysis begins with the construction of a new set of variables based
on the relationships in the correlation matrix. While this can be done in a number of
ways, the most frequently used approach is principal components analysis. This method
transforms a set of variables into a new set of composite variables or principal
components that are not correlated with each other.

These linear combinations of variables, called factors, account for the


variance in the data as a whole. The best combination makes up the first principal
component and is the first factor. The second principal component is defined as the best
linear combination of variables

For explaining the variables not accounted for by the first factor. In turn,
there may be a third, fourth, and component, each being the best linear combination of
variables not accounted for by the previous factors.

Cross tabulation

Cross tabulation is a technique for comparing two classification


variables, such as gender and selection by one’s company for an overseas assignment.
The technique uses tables having rows and columns that correspond to the levels or
values of each variable’s categories.

An example of a computer-generated cross-tabulation. This table has


two rows for gender and two columns for assignment selection. The combination of the
variables with their values produces four cells. Each cell contains a count of the cases
of the joint classification and also the row, column, and total percentages. The number
of row cells and column cells is often used to designate the size of the table, as in this
2*2 table.

The cells are individually identified by their row and column numbers,
as illustrated. Row and column totals, called marginal, appear at the bottom and right
“margins” of the table. They show the counts and percentages of the separate rows and
columns.
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When tables are constructed for statistical testing, we call them
contingency tables, and the test determines if the classification variables are
independent. Of course, tables may be larger than 2*2.

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CHAPTER 3

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Industry profile

For a market to succeed, it must have all three kinds of


participants-hedgers, speculators and arbitragers. The confluence of these participants
ensures liquidity and efficient price discovery on the market. Commodity markets give
opportunity for all three kinds of participants. In this chapter we look at the use of
commodity derivatives for hedging, speculation and arbitrage.

HEDGING
Many participants in the commodity futures market are hedgers. They
use the futures market to reduce a particular risk that they face. This risk might relate to
the price of wheat or oil or any other commodity that the person deals in. The classic
hedging example is that of wheat farmer who wants to hedge the risk of fluctuations in
the price of wheat around the time that his crop is ready for harvesting. By selling his
crop forward, he obtains a hedge by locking in to a predetermined price.

Hedging does not necessarily improve the financial outcome; indeed, it


could make the outcome worse. What it does however is, that it makes the outcome
more certain. Hedgers could be government institutions, private corporations like
financial institutions, trading companies and even other participants in the value chain,
for instance farmers, extractors, ginners, processors etc., who are influenced by the
commodity prices.

SHORT HEDGE

A short hedge is a hedge that requires a short position in futures contracts.


As we said, a short hedge is appropriate when the hedger already owns the asset, or is
likely to own the asset and expects to sell it at sometime in the future. For example, a
short hedge could be used by a cotton farmer who expects the cotton crop to be ready
for sale in the next two months.

A short hedge can also be used when the asset is not owned at the
moment but is likely to be owned the future. For example, an exporter who knows that
he or she will receive a dollar payment three months later. He makes a gain if the dollar

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increases in a value relative to the rupee and makes a loss if the dollar decreases in
value relative to the rupee. A short futures position will give him the hedge he desires.

LONG HEDGE
Hedges that involve taking a long position in futures contract are
known as long hedges. A long hedge is appropriate when a company knows it will have
to purchase a certain asset in the future and wants to lock in a price now.

SPECULATION
An entity having an opinion on the price movements of a given
commodity can speculate using the commodity market. While the basics of speculation
apply to any market, speculation in commodities is not as simple as speculating on
stocks in the financial market.
For a speculator who thinks the shares of a given company will rise, it
is easy to buy the shares and hold them for whatever duration he wants to. However,
commodities are bulky products and come with all the costs and procedures of handling
these products. The commodities futures markets provide speculators with an easy
mechanism to speculate on the price of underlying commodities.

To trade commodity futures on the NCDEX, a customer must open a


futures trading account with a commodity derivatives broker. Buying futures simply
involves putting in the margin money. This enables futures traders to take a position in
the underlying commodity without having to actually hold that commodity. With the
purchase of futures contract on a commodity, the holder essentially makes a legally
binding promise or obligation to buy the underlying security at some point in the future.

Speculation: Bearish commodity, sell futures

Commodity futures can also be used by a speculator who believes that


there is likely to be excess supply of a particular commodity in the near future and
hence the prices are likely to see a fall. How can he trade based on this opinion? In the
absence of a deferral product, there wasn’t much he could do to profit from his opinion.
Today all he needs to do is sell commodity futures.

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ARBITRAGE
A central idea in modern economics is the law of one price. This states that
in a competitive market, if two assets are equivalent from the point of view of risk and
return, they should sell at the same price. If the price of the same asset is different in
two markets, there will be operators who will buy in the market where the asset sells
cheap and sell in the market where it is costly.
This activity termed as arbitrage, involves the simultaneous purchase and
sale of the same or essentially similar security in two different markets for
advantageously different prices. The buying cheap and selling expensive continues till
prices in the two markets reach equilibrium. Hence, arbitrage helps to equalize prices
and restore market efficiency.
Indian commodity exchange and progress

The Bombay Cotton Trade Association set up the first commodity


exchange in India and formally organized futures trading in cotton in 1875.
Subsequently, many exchanges came up in different parts of the country for futures
trading in various commodities. The Gujarati Vyapari Mandali came into existence in
1900, which undertook futures trading in oilseeds for the first time in the country.

The Calcutta Hessian exchange ltd and the East India Jute Association
Ltd were set up in 1919 and 1927 respectively for futures trade in raw jute. Futures
trading in cotton were organized in Mumbai under the auspices of East India cotton
Association in 1921. Simultaneously, several exchanges were set up in major
agricultural centers in North India before the World War broke out and they were

mostly engaged in wheat futures until it was prohibited in 1921.

The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etc


were established during this period. The Government of India banned trading in
commodity futures in the year 1966 in essential commodities. As a result of this, all the
commodity futures in the year 1966, in order to have an effective control over the
Khusro Committeee in 1980, the Government, reintroduced futures trading in some
selected commodities. As a result of this, all the commodity exchanges went out of
business and many trades started resorting to unofficial and informal trading in futures

The journal of accounting and finance volume 20. No. 2
20
On the recommendation of the Khusro committee in 1980, the
Government reintroduced futures trading in some selected commodities including
cotton, jute potatoes etc. As a part of economic reforms, the government of India
appointed an expert committee on forward markets under the chairmanship of K N
Kabra in the year 1993.

Rules governing commodity derivatives exchanges


The trading of commodity derivatives on the NCDEX is regulated by
Forward Markets Commission (FMC). Under the Forward Contracts (Regulation) Act,
1952, forward trading in commodities notified under section 15 of the Act can be
conducted only on the exchanges, which are granted recognition by the central
government.

All the exchanges, which deal with forward contracts, are required to obtain
certificate of registration from the FMC. Besides, they are subjected to various laws of
the land like the companies Act, Stamp Act, Contracts Act, Forward commission Act
and various other legislations, which impinge on their working.

Forward Markets Commission provides regulatory oversight in order to


ensure financial integrity, market integrity and to protect and promote interest of
customers/ non-members. It prescribes the following regulatory measures:

1. Limit on net open position as on the close of the trading hours. Some times limit
is also imposed on intra- day net open position. The limit is imposed operator-
wise, and in some cases, also member-wise.

2. Circuit-filters or limit on price fluctuations to allow cooling of market in the


event of abrupt upswing or downswing in prices.

3. Special margin deposit to be collected on outstanding purchases or sales when


price moves up or down sharply above or below the previous day closing price.
By making further purchases/sales relatively costly, the price rise or fall is
sobered down. This measure is imposed only on the request of the exchange.

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4. Circuit breakers or minimum/maximum prices these are prescribed to prevent
futures prices from falling below as rising above not warranted by prospective
supply and demand factors.

5. Skipping trading in certain derivatives of the contract, closing the market for a
specified period and even closing out the contract.

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CHAPTER 4

DATA ANALYSIS AND EVALUATION OF PEDIATRECIANS

1. Cross tabulation between income group and age group.

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Case Processing Summary

Cases
Valid Missing Total
N Percent N Percent N Percent
income * age 60 92.3% 5 7.7% 65 100.0%

Table No 1
Income * age Cross tabulation

age Total
.25 25 to 40 40 to 50 50 above
incom >200000 Count
8 7 0 0 15
e
% within income 53.3% 46.7% .0% .0% 100.0%
% within age 100.0% 43.8% .0% .0% 25.0%
200000 to Count
0 9 3 0 12
300000
% within income .0% 75.0% 25.0% .0% 100.0%
% within age .0% 56.3% 25.0% .0% 20.0%
300000 to Count
0 0 9 6 15
375000
% within income .0% .0% 60.0% 40.0% 100.0%
% within age .0% .0% 75.0% 25.0% 25.0%
375000 & ab Count 0 0 0 18 18
% within income .0% .0% .0% 100.0% 100.0%
% within age .0% .0% .0% 75.0% 30.0%
Total Count 8 16 12 24 60
% within income 13.3% 26.7% 20.0% 40.0% 100.0%
% within age 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Primary Data

INFERENCE:

According to the survey most of the investors are falling under there
income more than375000 and age group 50 & above are regular investors among
other age and income group because it could be they are more aware about
trading system and their annual income also high.

Figure No .1

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20 age
.25
25 to 40
40 to 50
50 above
15
Count

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>200000 200000 to 300000 300000 to 375000 375000 & ab

income

2. Cross tabulation between income and occupation.

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Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
income *
occupati 60 92.3% 5 7.7% 65 100.0%
on

Table No .2

Income * occupation Cross tabulation


occupation Total
Pvt. emp govt emp businessman professional
income >200000 Count 0 0 15 0 15
% within income .0% .0% 100.0% .0% 100.0%
% within
.0% .0% 75.0% .0% 25.0%
occupation
200000 to Count
0 0 5 7 12
300000
% within income .0% .0% 41.7% 58.3% 100.0%
% within
occupation .0% .0% 25.0% 70.0% 20.0%

300000 to Count
375000 12 0 0 3 15

% within income
80.0% .0% .0% 20.0% 100.0%
% within
occupation 57.1% .0% .0% 30.0% 25.0%
375000 & Count
above 9 9 0 0 18

% within income
50.0% 50.0% .0% .0% 100.0%

% within
occupation
42.9% 100.0% .0% .0% 30.0%

Total Count
21 9 20 10 60

% within income
35.0% 15.0% 33.3% 16.7% 100.0%

% within
occupation 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Primary Data

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INFERENCE:

According to the survey income and occupation among that income


falling above 375000 per alum and occupation pvt .employees are regularly
investors because there income may be high when compare to other income
group.

Figure No 2

Occupation
14 pvt emp
govt emp
Businessman
12 proffessional

10
Count

>200000 200000 to 300000 300000 to 375000 375000 & ab

Income

3. Do you trade in commodity futures?

27
Statistics

trader1
N Valid 60
Missing 5
Minimum 1.00
Maximum 2.00

Table No 3

Traders in Commodity futures

Cumulative
Respondent Frequency Percent Valid Percent Percent
Valid regular trader 49 75.4 81.7 81.7
potential customer 11 16.9 18.3 100.0
Total 60 92.3 100.0
Missing System 5 7.7
Total 65 100.0

Source: Primary Data

INFERENCE:

According to the survey commodity traders are high. That is regular


traders more significant among two variables. So it got 49% out of 60 %.

28
Figure No .3

trader1

100

80

60
Percent

40

20

0
regular trader potential customer
trader1

4. if they trade regularly, why

29
Table No .4

Attributes of satisfaction

Options No of Respondent Percentage

Trade on an organized 12
exchange
24.48%

Standardized contract terms 17 34.69%

follows of daily settlement


12 24.48%

location of settlement 8 13.33%

Total 49 100%

30
Source: Primary Data

INFERENCE:

According to above definition it is clear that regular investors in


commodity futures are satisfied about its facilities and futures contract. Among
all these attributes
Standardized contract signifies more 34.69% when compare to other variable.

Figure No 4

regular investo

31
Cumulative
Frequency Percent Valid Percent Percent
Valid influences the
price variation 25 38.5 41.7 41.7
not influence the
price variation 35 53.8 58.3 100.0
Total 60 92.3 100.0
Missing System 5 7.7
Total 65 100.0

N Valid 60
Missing 5
Std. Deviation .49717

5. Do you think futures trading influence the price and price variation?

Influences

Table No 4.1

Future trading influences price and price variation

32
Sources Primary Data

INFERENCE:

According to the survey most of the investors believe that price and
price variation dose not influence the price variation.
Survey indicated that the major influencing factor that is 35% says that
price dose not influence the commodity futures.

Figure No 5

33
influences

influences the price


veriation
not influence the
price veriation
Missing

6. If price and price variation influences the fluctuation, how

Summery

N Valid 25
Missing 40

34
Minimum 1.00
Maximum 4.00

Table No .6

Attributes of influences in price and price variation

Cumulative
Frequency Percent Valid Percent Percent
Valid seasonal price variation 10 15.4 40.0 40.0
inter and intra seasonal
fluctuation in price 5 7.7 20.0 60.0
short term oscillation in
prices 5 7.7 20.0 80.0
average received by
producers and paid by 5 7.7 20.0 100.0
consumers
Total 25 38.5 100.0
Missing System 40 61.5
Total 65 100.0

INFERENCE:

According to the survey most of the investors believe that price and
price variation influences the fluctuation of the market.
Survey indicated that the major influencing factors, seasonal price
variation that influence in short term volatility in the market so table shows that
15.4 % among other variables got for seasonal price variation.

Figure No 6

35
10

8
Frequ
ency

Mean =2.20
Std. Dev. =1.19024
0 N =25
0.00 2.00 4.00

Influence

7 .if price and price variation dose not influence commodity futures by various
commodity trading.

36
Table No .7

Methods of risk avoiding

Options No of Respondent Percentage


By hedging 12 30

40
By speculation 15

By arbitrage
8 30

35 100
TOTAL

Source: Primary Data

37
Price and variation

Table No .8

Respondent Observed Expected


(O – E ) (O- E )2 ( O-E )2\E
No No.
.

30 30 0 0 0
By hedging

By
40 30 10 100 3.333
speculation

By arbitrage
30 30 - 10 100 3.333

Total
90 90 0 6.666

Source: Primary Data

χ 2= Σ [(O-E) 2/E] =6.666


d. f. = 3-1= 2 Tabulated value = 5.991

38
Since calculated value of χ 2 = 6.666 is greater than the
tabulated value 5.991, it is significance. Hence we conclude that the future
trading dose not influence the price and price variation.

8. Are you satisfied about future trading in commodity exchange?

Ranks about satisfaction levels

Table No: 9

Options No of Respondent Percentage


R1
10 16.66

R2 25
15
10 16.66
R3

R4
10 16.66
R5 10 16.66
R6 5 8.33

TOTAL 60 100

39
Source: Primary Data

INFERENCE:

According to the survey most of the investors are satisfied above mentioned
options i.e. R1, R2, R3, R4, R5, R6.
Survey indicated that the major influencing factors for commodity futures
are fair price discovery and transparent trading. So it helps investors to track
the current fluctuation in price and proper price discovery.

Figure No .9

satisfied futur

5 10
5
40
Attributes

R1-Transparent trading

R2- Fair price discovery

R3- Automated trading system

R3- Unique identification number

R4- To provide nationwide reach and consistent offering

R5- To bring together the entities that the market can trust

9. Current regulatory mechanism of commodity futures in India

Table No: 10

Options No of Respondent Percentage

R1 10 16.66%

30%
R2 18

R3 8 13.33%

R4 12 20%

R5 12 20%

Total 60 100%

41
Source: Primary Data

Attributes

R1- Limit on net open position as on the close of the trading hours.

R2- Limit on price fluctuation to allow cooling of market in the event of


abrupt upswing or downswing prices.

R3- Special margin deposit to be collected on outstanding purchase or


sales when price fluctuate.

R4- Minimum\maximum prices-these are prescribed to prevent futures


prices from falling below as rising above not warranted prospective
supply or demand.

R5- Skipping trading in certain derivatives of the contract, closing the


market for a special period and even closing out the contract.

Inference:

42
According to the survey most of the investors are satisfied current
regulatory measures that is above mentioned options i.e. R1, R2, R3, R4, and
R5.
Survey indicated that the major influencing factors for commodity
futures are Minimum\maximum prices-these are prescribed to prevent futures
prices from falling below as rising above not warranted prospective supply or
demand.

Skipping trading in certain derivatives of the contract, closing the


market for a special period and even closing out the contract.
. So it helps investors to track the current regulatory measure in price and proper
price discovery.

Figure No.10

43
Reguletery m

18
16
14
12
10
Repondents
8
6
4
2
0
Reguletry R2
mechanism
attrib

44
CHAPTER 5

Findings and Inferences

45
The following prerequisites are certain to give a big boost to commodity futures
trading in India:

A.)A negotiable document, may be in demat form, is to be created for the


underlying asset of the futures being traded so that the title of the goods can be
transferred from one individual to another without undertaking the physical
delivery of stocks.

b.) An agency is to be set up to help the seller and buyer by grading the stocks
being offered by them for sale and certify their quality so that the buyer can be
sure of buying them.

C.)There must be a Clearing House that takes care of the commodity that is
being traded in the derivatives exchanges and ensures that quality is maintained
till the stock under the traded contact is delivered to the ultimate buyer, at a
reasonable cost.

D.)Commodities trading must be settled in determined form so that traders from


across the country can trade futures being certain of the underlying commodity
in terms of its quality, grade, quantity and its maintenance during the intervening
period.

E.)Banks can come forward to sanction agriculture produce loans to farmers


against the pledge of warehouse receipts and futures contracts of national
derivatives exchanges.
They should also explore the possibility of offering hedge prospects
to farmers on a pooled basis, with banks as intermediaries between exchanges
and farmers and thus pave the way for active futures trading in agriculture
commodities so that farmers can enjoy the benefit of dependable price discovery
well in advance to their planting and sowing season.

46
G.) The market must be efficient with widespread awareness amongst various
market players. The liquidity would increase further with a well-diversified
basket of commodities.

I.)The union Finance Minister, in his Budget-2005 speech, pleaded for a single
regulatory regime. It will find very difficult to tackle complexities in the socio
economic dimensions of the fledging commodity future.

J.)Healthy competition is always beneficial to catalyze the growth in any market.


In this case too, the government has to take necessary steps for the
implementation of online commodity trading on the regional exchanges also.

K.)The market should be made broader based by allowing banks and FIIs to
participate in commodity futures. Options should be allowed to be traded as that
will give one more efficient tool to the participants to apply various hedging
strategies for averting their price risks.

CONCLUSION
The agriculture industry requires increasing formation, improved
availability of agriculture inputs, infrastructure facility agricultural business, etc
A conductive environment also helps in bringing cost effectiveness by
influencing the existence of commodity exchange will strengthen the market
based trading system, which could also be used for by the Government.
Definitely, commodity exchange will create an environment where farmers will
have many options of selling their commodities like spot market, future market
and future market referred OTC forward market. Due to future market being
executable at national level in electronic format, integration of banks and
institutional traders in commodities market would create several institutional
traders in farmers. Thus MCX is likely to play a pivotal role in the process
enable “Second Green Revolution”.
With all its attendant benefits, we are confident that the
commodity exchange will initiate the ‘Second Green Revolution’ by making it
the ‘development mantra ‘of the country in the 21st century. Therefore, the
47
challenge right now for us is to take the fruits of the commodity futures make a
difference by establishing a sustainable model for the development of “kissan”of
the nation.
Developing countries have large exposure to commodity price risk.
Can be eliminated by speculation hedging and arbitrage and seasonal price
fluctuation. Exports are often concentrated in a few primary commodities with
positively correlated price movements. The dependence on a few commodities
and uncertain commodity prices expose such countries to uncertain revenues and
expenditures. This has varied consequences such as affect the government
revenue, have an adverse impact on commodity financing in terms of increased
cost of debt or no or low debt due to poor credit worthiness etc.
The beta calculation reflects a measure of historical alignment of
the price of a stock with that of the market. Hence many regard it as a
“measurement” of past relationship that cannot be naively used as an “estimate”
of future risk. Why? Two reasons are commonly given;
To overcome this limitation, some adjustment may be required. A
procedure that is sometimes recommended is to take a weight average of the
historical beta, on the one hand, and 1.0 (the value of market beta) on the other.
The weighting scheme should take into account the degree of historical
estimation error and the dispersion of individual firms around the average. If the
historical estimation error is large, the weight assigned to the historical beta
should be small.
The future is certainly bright for the Indian commodities market.
Once the much awaited institutional participation enters the market, it will create
speculation, arbitration and hedging for all kinds of players in the market

SUGGESTION

48
 Delay the transfer of commodities in the name of transferee

 Effect take part either directly or indirectly transactions, which are likely
to have effect of artificially, raising or depressing spot or derivatives
contract.

 Miss calculation creates a false or misleading appearance of trading,


resulting in reflection of prices which are not genuine.

 Buy, sell commodities contracts on his own behalf or on behalf of a


person associated with him pending the execution of the order of his
constituent

 Indulge in falsification of his books accounts and records for the purpose
of manipulation

49
BIBLIOGRAPHY

50
Books Referred:

 P. j. Kaufman commodity trading system and methods, john Wiley &


sons, New York, 1978.The author include a chapter on “behavioral
techniques.” He discusses contrarian’s strategies and demonstrates the use
of the Elliott wave theory and measurement of moves and correction in
future markets.
 Future and options in risk management by Terry j.Watsham.
 Derivative markets in India 2003 edited by susan Thomas.

Websites Visited:
www.mcx.com
www.sbi.com
www.google.com
www.ncdex.Com
www.capitaline.com

51
PART- A

52
Personal Information

SEX MALE FEMALE

AGE GROUP : BELOW 25 YEARS 40 TO 50

25 TO 40 50AND
ABOUE

QULIFICATION : BELOW PUC DEGREE

POST GRA OTHERS……..

OCCUPATION PVT .EMPLOYEE BUSINESSMAN

GOVT.EMPLOYEE PROFESSIONAL

ANNUAL INCOME : BELOW 2500 RS50000TO75000

RS 25000TO5000 RS 75000TABOUE

53
Part – B

1. Do you trade in commodity futures?

Yes No

2. If yes, why?

i. Trade on an organized exchange

ii. Standardized contract terms

iii. Follows of daily settlement

iv. Location of settlement

3. Do you think futures trading influence the price and price variation?

Yes No

4. If yes, why?

i. Seasonal price variation

ii. Inter and intra-seasonal fluctuation in price

iii. Short term oscillation in prices

iv. Average prices received by producers and paid by consumer

5. If no, why?

a. By hedging

b. By speculation

c. By arbitrage

6. Are you satisfied about future trading in commodity exchange?

54
Yes No

7. If yes, please rank from 1 to 6

a. Transparent trading

b. Fair price discovery

c. Automated trading system

d. Unique identification number

e. To provide nationwide reach and consistent offering

f. To bring together the entities that the market can trust

8. If no, comment

i. ----------------------------------------------------------------------

ii. --------------------------------------------------------------------

9. How do you rank current regulatory mechanism of commodity futures in


India

a) Limit on net open position as on the close of the trading hours.

b) Limit on price fluctuation to allow cooling of market in the event of


abrupt upswing or downswing prices.

c) Special margin deposit to be collected on outstanding purchase or


sales when price fluctuate.

d) Minimum\maximum prices-these are prescribed to prevent futures


prices from falling below as rising above not warranted prospective
supply or demand.

e) Skipping trading in certain derivatives of the contract, closing the


market for a special period and even closing out the contract.

THAK YOU FOR YOUR KIND CO-OPRATION.

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