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CHAPTER - I

INTRODUCTION

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INTRODUCTION
Commodity market is an important constituent of the financial
markets of any country. It is the market where a wide range of products, viz.,
precious metals, base metals, crude oil, energy and soft commodities like palm oil,
coffee etc. are traded. It is important to develop a vibrant, active and liquid
commodity market. This would help investors hedge their commodity risk, take
speculative positions in commodities and exploit arbitrage opportunities in the
market.
Derivatives as a tool for managing risk first originated in the commodities
markets. They were then found useful as a hedging tool in financial markets as well.
In India, trading in commodityfutures has been in existence from the nineteenth
century with organised trading in cottonthrough the establishment of Cotton Trade
Association in 1875. Over a period of time, othercommodities were permitted to be
traded in futures exchanges. Regulatory constraints in1960s resulted in virtual
dismantling of the commodity futures market. It is only in the lastdecade that
commodity futures exchanges have been actively encouraged however, the markets
have not grown to significant levels.
A commodity derivatives market (or exchange) is, in simple terms, nothing
more or less than a publicmarketplace where commodities are contracted for
purchase or sale at an agreed price for delivery at aspecified date. These purchases
and sales, which must be made through a broker who is a member of an organized
exchange, are made under the terms and conditions of a standardized futures
contract.Commodity prices do vibrate more rapidly and provide profitable
opportunities,

accordinglyrecessions,

depressions

and

booms

offer

many

opportunities to scoop up profits. Exchange Traded Derivatives can be broadly
classified into Futures and Options.

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Indian markets have recently thrown open a new avenue for retail investors and
traders to participate commodity derivatives. For those who want to diversify their
portfolios beyond shares, commodities bonds and real estate are the best options.
The retail investors could have done very little to actually invest in
commodities such as gold and silver or oilseeds in the futures market. This was nearly
impossible in commodities except for gold and silver as there was practically no retail
avenue for pumping in commodities.
However, with the setting up of three multi-commodity exchanges in the country,
retail investors can now trade in commodity futures without having physical stocks!
Commodities actually offer immense potential to become a separate asset class for
market survey investors, arbitrageurs and speculators. Retail investors, who claim to
understand the equity markets, may find commodities an unfathomable market. But
commodities are easy to understand as far as fundamentals of demand and supply are
concerned. Retail investors should understand the risks and advantages of trading in
commodities futures before taking a leap.

Historically, pricing in commodities

futures has been less volatile compared with equity and bonds, thus providing an
efficient portfolio diversification option.
Currently, the various commodities across the country clock an annual turnover
of Rs.1,40,000crore ( Rs.1,400 billion). With the introduction of futures trading, the
sizes of the commodities market grow many folds here on.
Like any other market, the one for commodity futures plays a valuable role in
information pooling and risk sharing. The market mediates between buyers and
sellers of commodities, and facilitates decisions related to storage and consumption
of commodities. In the process, they make the underlying market more liquid.

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The efficiency of a futures contract for hedging depends on the prevalence of such an ideal price relationship between the spot and futures markets. In other words. in a perfectly competitive market with surplus supplies and abundant stocks round the year. Theoretically ( and ideally). India had to pay $ 52 per barrel more for importing oil than what they had to pay a week ago. 4 . in February. The utility of a futures contract for hedging or risk management purpose parallel or near-parallel relationship between the spot and futures prices over time. the futures price will exceed the spot price by the cost of storage till the maturity of the futures contract.NEED OF THE STUDY Achieving hedging efficiency is the main reason to opt for futures contracts. but also by almost the same magnitude. so that losses in one market are offset by gains in the other. the efficiency of a futures contract for hedging essentially envisages that the prices in the physical and futures markets move in close union not only in the same direction. thereby reducing the premium or contango commanded by the futures contract over the spot delivery over its life and eventually becomes zero during the delivery month when the spot and futures prices virtually converge. But such storage cost declines as the contract approaches maturity. For instance. 2007.

 To understand the futures trading in Gold and Silver.OBJECTIVES  To study commodity derivatives and their significance in Indian financial markets. its history and latest development in the Indian commodity market.  To ascertain the basis / pay offs of Gold and Silver futures.  To study the price volatility of Gold & Silver in the spot and future markets. SCOPE OF THE STUDY The study mainly focuses on Indian commodity market. The scope of the study limited to Indian commodity market. The study vastly covered the accepts of commodity market. clearing house and settlement mechanisms in Indian commodity market. The study of conducted for a period of 45 days 5 . A study also keeps a birds-eye view on global commodity market and its development.

METHODOLOGY OF THE STUDY The data used in the project is secondary in nature & collected from various websites.  The study is not based on the international perspective of derivatives markets which exists in NMCE.  The study is limited only to the commodities of NCDEX. Data Collection: The data of the Gold & Silver has been collected from the news paper& internet. 6 . Analysis: The analysis consists of the tabulation of the data assessing the profitability positions of the Commodity futures. LIMITATIONS OF THE STUDY The following are the limitation of this study  The study is conducted in short period. representing the data making the interpretation using data.  The study is limited to Indian commodity markets. news paper and from the commodities head (Asst manager) of the organization. due to which the study may not be detailed all aspect. CME and CBOT etc.  The payoffs are estimated with respect to only Gold and Silver for a limited period.

CHAPTER-II REVIEW OF LITERATURE 7 .

50. It was established by a group of Hydrabad-based practicing Chartered Accountants. Over the past one and half decades. Later. In starting it was only offering auditing and taxation services. it acts into the Registrar and Share transfer activities and subsequently into financial services and other services like Financial Product Distribution. Karvy has evolved as a veritable link between industry. Karvy’s strong work ethics and professional background leveraged with Information Technology enabled it to deliver quality to the individual.2500 Crores. In January 1998. It was started with a capital of Rs.Karvy Consultants Limited was established in 1982 at Hydrabad. besides companies. Insurance etc. The company service over 16 million individual investors. 180 corporate and handle corporate disbursements that exceed Rs. Demat Services. banks.000. Corporate Finance. Today. Today. A decade of commitment. 8 . 1. professional integrity and vision helped Karvy achieving a leadership position in its field when it handled largest number of corporate and retail that proved to be a sound business synergy. financial institutions and regulatory agencies. company has 230 branch offices in 164 cities all over the India. At initial stage it was very small in size. Investment Advisory Services. finance and people. Karvy’s commitment to quality and retail reach has made it an Integrated Financial Services Company. All along. The company adds 5 new offices every month to the company’s ever growing national network in every nook and corner of the country. Karvy has access to millions of Indian shareholders. An ISO 9002 Company. Karvy became first Depository Participant in Andhra Pradesh.

Ltd.WHERE KARVY STAND IN THE MARKET? KARVY is a legendary name in financial services. Today KARVY is well known as a premier financial services enterprise. What bears ample testimony to Karvy’s success is the faith reposed in company by valued investors and customers. passion for professionalism. offering a broad spectrum of customized services to its clients. Services that KARVY constantly upgrade and improve are because of company’s skill in leveraging technology. Being one of the most techno-savvy organizations around helps company to deliver even more cost effective financial solutions in the shortest possible time. Board of Directors Karvy Consultants Limited 9 . KARVY GROUP Karvy Consultants Limited Karvy Securities Limited Karvy Investor Services Limited Karvy Stock broking Limited Karvy Computer Shares Pvt. Karvy’s credit is defined by its mission to succeed. all across the country. with Karvy’s wide network touching every corner of the country. even the most remote investor can easily access Karvy’s services and benefit from company’s expert advice. both corporate and retail. Indeed. excellent work ethics and customer centric values.

Parthasarathy C Yugandhar M Ramakrishna M S Prasad V Potluri Robert Gibson Sanjay Kumar Dhir R Shyamsunder [Table1: BODs of Karvy Consultants Limited] Karvy Investor Services Limited Parthasarathy C Yugandhar M Ramakrishna M S [Table2: BODs of Karvy Investor Services Limited] Karvy Securities Limited Parthasarathy C Yugandhar M Ramakrishna M S Ajay Kumar K William Samuel Nicholas Tully [Table3: BODs of Karvy Securities Limited] Karvy Stock Broking Limited Parthasarathy C Yugandhar M Ramakrishna M S Ajay Kumar K Kutumba Rao V 10 .

Karvy’s mission statement is “To Bring Industry. Karvy work as investment advisor and helps people to invest their money same way Karvy helps industry in achieving finance from people by issuing shares. The mission statement may be changed periodically to take advantage of new opportunities or respond to new market conditions. Company’s mission statement is clear and thoughtful which guide geographically dispersed employees to work independently yet collectively towards achieving the organization’s goals. And continue to grow at a healthy pace. decade after decade.” Company’s foray into IT-enabled services and internet business has provided an opportunity to explore new frontiers and business solutions. To build a corporate that sets benchmarks for others to follow. Vision of Karvy Company’s vision is crystal clear and mind frame very directed.” Karvy is work as intermediary between industry and people. debentures. mutual funds. year after year. bonds. The mission statement indicates what an organization wants to achieve. Finance and People together. Behind the Picture: What Customers matter for KARVY? 11 .William Samuel Nicholas Tully [Table4: BODs of Karvy Stock Broking Limited] Mission Statement of ‘Karvy’ An organization exists to accomplish something or achieve something. fixed deposits etc. “To be pioneering financial services company.

Jamnagar branch 2003 was truly exhilarating because of: Successful implementation of a carefully crafted strategy. Karvy value and carefully nurture relationships with customers. These are intangible. 12 . Karvy need to carefully manage itself to avoid down trading or brand shifts by consumers. Karvy has focused on some of these to gain competitive advantages. For Karvy.The underlying picture forming answer for above question is given below. [Fig. In a competitive market and a branded business. it is the ‘focus on relationships’ which has been the corner stone of satisfying and successful presence in India over many years. its own staff.’ Karvy has started 2004 on a strong note with the realization to signal some of the challenges it faced previous year. There are: Winning culture and a desire to excel in everything Karvy do. Revival and Reappearance. Excellence in execution.1 Competitive Advantage of Karvy] Every year with this picture keeping in mind ‘Karvy accelerate with Recovery. Strong meaningful relationships with Customers along with Strategic Partners in which Karvy operate and above all. Karvy truly believe that more than technological prowess and business process innovations. difficult to replicate and thus more sustainable. Some competitive advantages are long lasting. Immense learning enabling to set up a launch pad for revitalizing itself.

This has been possible with deep insight of consumer behavior as well as market demand drivers. Karvy’s customers consider themselves part of Karvy family and share their experiences and dreams with other customers and thus Karvy becomes successful not only in relating customers but also gains new customers from satisfied prevailing customers. Demat services 13 . Karvy want to create a strong emotional bond with new customers promoted by prevailing customers. Stock broking 2. Karvy Values: Integrity Responsibility Reliability Unity Understanding Excellence Confidentiality Karvy has adequate internal control systems and procedures commensurate with the size nature of its business. protection of resources and safeguarding of assets against unauthorized use KARVY SERVICES – AN OVERVIEW 1. understanding of the arena where to operate and quality execution – all thanks to a ‘greater team’ that makes this happen. reliability of financial information. These system and procedures provide reasonable assurance of maintenance of proper accounting records.

” 2. Registrars & Transfer agents 10. They are intermediaries between the depository and the investors. Corporate finance & Merchant banking 6.3. Mutual fund services 8. 14 . Demat Services: Karvy is a depository participant with the National Securities Depository Limited (NSDL) for trading and settlement of dematerialized shares. Investment advisory services 5. Stock Broking: KARVY is working as Capital Market Intermediaries. A DP can offer depository-related services only after obtaining a certificate of registration from SEBI. Loans 1. Depository Participants (DPs) are described as an agent of the depository. Stockbrokers are the intermediaries who are allowed to trade in securities on the exchange of which they are members. They buy and sell on their own behalf as well as on behalf of their clients. Insurance 7. selling or dealing in securities through such stock-brokers. Stockbrokers expand their business by engaging sub-broker. Sub-brokers mean “any person not being a member of a stock exchange who acts on behalf of a stock broker as an agent or otherwise for assisting the investors in buying. The stockbroker is a member of the stock exchange. IT enabled services 9. Investment product distribution 4. Stockbrokers are regulated by SEBI [Stock-brokers and Sub-brokers] Regulations. The relationship between the DPs and the depository is governed by an agreement made between the two under Depositories Act. 1992.

Housing Finance Companies and Manufacturing CompaniCompany is dealer of following Fixed Deposits PUBLIC SECTOR Sl. They can use Karvy’s brokerage services to execute transactions and Karvy’s depository services to settle them. 7 IDBI Suvidha 8 Nicco Uco Alliance Credit Ltd. Company Name 1 HUDCO 2 Sardar Sarovar Narmada Nigam Ltd. No. 4 NTPC NON BANKING FINANCE COMPANIES Sl. 3 Birla Home Finance Ltd. Bonds (a).Since Karvy is also in the broking business. Non Banking Finance Companies. 6 First Leasing Company of India Ltd. Company Name 1 Ashok Leyland Finance Ltd. Fixed Deposit: KARVY is dealer of 34 fixed deposits of various types which includes fixed deposits of Public Sector. 3 Tamilnadu Power Finance Corporation Ltd. 4 Cholamandalam Investment & Finance Co. 3. 5 Escorts Finance Ltd. Investment Products Distribution: Company is also concern with the distribution of investment products like (a). 2 Bajaj Auto Finance Ltd. 15 . Fixed Deposit (b). No. Ltd. investors who use Karvy’s depository services get a dual benefit.

[Table6: FD of Non Banking Finance Companies with which Karvy deals] HOUSING FINANCE COMPANIES Sl. 11 JK Industries Ltd. 7 Greaves Ltd. 2 Dewan Housing Finance Corporation Ltd. 3 Gruh Finance Ltd. 3 Atul Ltd. No. 9 Indian Express 10 Ind-Swift Ltd. 12 Jindal Steel & Power Ltd. 5 Chambal Fertilizers & Chemicals Ltd. 6 Escort Ltd. [Table7: FD of Housing Finance Companies with which Karvy deals] MANUFACTURING COMPANIES Sl. Company Name 1 Can Fin Homes Ltd. 8 Gujarat Alkalies & Chemicals Ltd. 5 PNB Housing Finance Ltd. 4 Ballarpur Industries Ltd. 4 HDFC Ltd. 2 Amtek India Ltd. No. Company Name 1 A P Paper Mills Ltd. 16 . 13 Sound Craft Industries Ltd. 6 Sundaram Home Finance Ltd.

Investment Advisory Services: This division provides portfolio management services to high net-worth individuals and corporate. 15 Zuari Industries Ltd. It designs portfolio for investor to invest their saving in various financial products like shares. Based upon this Karvy helps individual investors to plan their entire life up to retirement. Insurance needs and other important personal financial goals.14 Supreme Industries Ltd. 17 . Financial goal of each individual investor varies according to his dream. risk bearing capacity and investment goals of investors keeping in mind their psyche and financial needs. 4. [Table8: FD of Manufacturing Companies with which Karvy deals] (b). bonds. Company provides stationary at the time of IPO as well as provides information to investors regarding IPO and solves their queries. Taxes. ambition and family size and future financial planning for the children & old age pension for self and wife so does the pathway to achieve it. Bonds: Karvy is dealer of following bonds RBI Saving Bonds NHB REC (c). IPO: Company is also provides services related to Initial Public Offer of company. it understands the time horizon. Company provides advisory services to its clients. Karvy apply the principles of Financial Planning as both science & art. The expertise of Karvy in research and stock broking gives it the right perspective to provide investment advisory services.

beginning from identifying the best time for an issue to final stage of marketing it. Company design portfolio by considering following factors 5. issuing shares. Karvy offers the full spectrum of Merchant Banking Services. to harvest unparalleled success.debentures. Mutual Fund Services: Since its inception in 1982. With Mutual Funds emerging as a distinct asset class. company is associated with dealing of following companies. Firm’s capital can be raised by raising loans. fixed deposits. Karvy. It concerned with how firms raise capital and the consequences of alternative methods of raising capital.. Karvy has demonstrated a dedication coupled with dynamism that has inspired trust from various segments – corporate. insurance etc. today. government bodies and individuals.000 crores. 6. Insurance: Karvy is also dealer of many private life insurance companies. Karvy has made a strategic choice to leverage the power of latest technology to provide a cutting edge to its services. Karvy's ability to mass customize and offer a diverse range of products for a diverse range of customers has helped mutual fund companies to uniquely position 18 . Corporate finance & Merchant banking: Corporate finance is the financial activity of corporation.10. 7. It deals with the firm's operations with regard to investing and financing. Karvy has since been performing a pivotal role as the intermediary – the interface – between these players. and acquiring or merging with other businesses by public or private companies Karvy enjoys SEBI category (I) authorization for Merchant Banking. service nearly 80% of the asset management companies (AMCs) across an extensive network of service centers with assets under service in excess of Rs. At Jamnagar branch. mutual funds.

b. Karvy shall strive to create new products and services. a. Going forward. c.themselves in the market place. List of Mutual Fund Clients of KARVY: 1 Alliance Mutual Fund 2 Birla Mutual Fund 3 Bank of Baroda Mutual Fund 4 Can Bank Mutual Fund 5 Chola Mutual Fund 6 Deutsche Mutual Fund 7 DSP Merrill Lynch Mutual Fund 8 Franklin Templeton Investments 9 GIC Mutual Fund 10 HDFC Mutual Fund 11 HSBC Mutual Fund 12 IL & FS Mutual Fund 13 JM Mutual Fund 14 Kotak Mutual Fund 15 LIC Mutual Fund 16 Punjab National Bank Mutual Fund 17 Prudential ICICI Mutual Fund 18 Principal Mutual Fund 19 Reliance Mutual Fund 20 State Bank of India Mutual Fund 21 Standard Chartered Mutual Fund 22 Sundaram Mutual Fund 23 SUN F&C Mutual Fund 24 Tata Mutual Fund 8. Distribution of TAN Card. 19 . which would address the needs of the end customer. Income Tax enabled services: Karvy has been started this service since March. Distribution of PAN Card. 2004. Services related to e-TDS. Karvy is work as TIN Facilitation Centre it provides following IT enabled services.

other agencies will also play key roles in the TIN system. Handling of Volumes Timely Dispatch Quality Management and Technological Up gradation.Karvy work as an intermediary between NSDL and IT payers. 20 . It also solves queries of the tax payers. it reached a milestone when it processed 104 Public Issues constituting 46 per cent market share. This is designed to make the tax administration more effective.MARG. Karvy is the leader in the industry: In an opinion poll conducted by an independent market research agency . (NSDL) has established a nationwide Tax Information Network (TIN) on behalf of the Income Tax Department (ITD). reduce compliance cost and bring greater transparency. In 1994-95. Now in its second decade of existence. Registrars & Transfer agents: In 1985. implementation and maintenance of TIN as per the requirements of ITD. It also distributes PAN and TAN card to the tax payers. Karvy has established infrastructure required to provide IT enabled services so. Karvy entered the Registrar and Share Transfer Business to create a market niche in the competitive field of financial services. While NSDL will be the primary agency responsible for the design. Karvy provides various form for different IT enabled services and guide people to fill that forms. Karvy provides TIN facilitation centers all over India on behalf of NSDL. furnishing of returns convenient. TIN Overview National Securities Depository Ltd. Besides Karvy following companies can also work as intermediary between NSDL and customer 9. Karvy has been rated as India’s Most Admired Registrar on various parameters: Overall Excellence.

This service has not been started in Saurashtra-Kucch region.A SEBI Category 1 Registrar. Karvy is also positioned according to Ries and Trout. Vehicle Loan Home Loan Personal Loan MARKETING STRATEGY OF KARVY SILVER Market Positioning Market positioning statements of Karvy are “At Karvy we give you single window service” and “We also ensure your comfort”. By this way Karvy provides comfort to its customers. So far. Karvy is promoted as a no. 21 . and Bonds etc. 10. debentures etc. and help the person in designing his portfolio. Loan: Karvy has recently started this service at selected branches of metro cities. 1 investment product distributor and R & T agent of India. Karvy also provides other investment option to the same person at same place like Mutual Fund.So. Karvy provides loans for following. Karvy focus on the consumers who prefer almost all investment activities at same place by providing number of various financial services. Karvy has handled over 675 ISSUES as Registrars to public issues processed over 52 million applications and is servicing over 16 million investors from various locations spread over 205 clients. and at the same place also demat it. Insurance. At Karvy a person can purchase or sell shares. Fixed Deposit.

Marketing channel System: Karvy uses one level marketing channel for investment product distribution. and information forward to its sub-broker. Companies focus on Advisors of Insurance and post office. 22 . Company distributes stationery. queries. Company has both forward and backward flow of activity through channel. brokerage. address and logo of Karvy on their annual report. Newspapers. back to the company. PROJECT Channel Members: Karvy provides PROJECT to the sub-brokers because they will be viewed as the company by the investors. Company also periodically arrange seminar to guide sub-brokers. Tax consultants and CAs for making sub-broker. amount of investment etc. Target person for the Karvy Stock Broking and Karvy Investment Service are persons who can work as sub-broker for the companies. The executives of Karvy explain various new schemes of investment to the sub-brokers with its objective. Sub-brokers work as intermediary between consumer and company. Karvy’s advertisement is made indirectly by the companies associate with it. Karvy also publish its weekly Stock Market Newsletter ‘Karvy Bazaar Baatein’ and monthly magazine ‘The Finapolis’ to guide investors and sub-brokers about market. and Magazines etc. risk factors and expected return.Target Market: Karvy uses demographic segmentation strategy and segment people based on their occupation. Karvy is R & T agent of around 700 companies. Company doesn’t give advertisement in media like TV. The sub-brokers send filled forms. They publish name. Advertising and Promotion: The objective of advertising of Karvy is to create awareness about services of Karvy among investors and sub-brokers and increase sub-brokers of Karvy. Karvy uses selective specialization strategy for market targeting.

PROJECT and Development: Continuous PROJECT and upgrading technical. E.HR POLICY OF KARVY Karvy’s HR Department is located at Hyderabad. The regional manager has authority to select lower level employee like peon. by approval of zonal manager. Jamnagar. Karvy encourages employees to hone their skills regularly to enable them to face the challenges of the changing requirements of customers that fit market up and down. New employee has given PROJECT under experienced employee. behavioral and managerial skills is a way of life in Karvy.g. regional managers. accountant etc. Marketing executive of Jamnagar branch directly reports Senior Marketing executive of Baroda zonal office. PROJECT needs analysis is done on a regular basis and systematic methodologies are ensured that skills and capabilities of all employees are constantly upgraded to enable them to perform in the challenging work environment. They don’t have to report any person of the same branch but they report upper level branch.e. Recruitment and Selection Policy: The upper level members like zonal managers. marketing executives. The qualified applicant are then called for interview and selected. E. Employee Motivation: Karvy’s employees are highly empowered. last year Karvy had arranged two days tour of Div for their employees of Rajkot. 23 . branch managers and senior executives are recruited by publishing recruitment advertisement in leading national level newspaper. If particular branch earn certain profit then Karvy gives them special incentives. When company employs new technology or there is any change in the working of company the PROJECT program is arranged. The new employee work under experience employee and observe his all activities.

In the process. employees. Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics. Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients. Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of same.9002 Certified Registrar in India A Category. Establish a partner relationship with its investor service agents and vendors that will help in keeping up its commitments to the customers.I Merchant banker A Category. suppliers and regulatory authorities) proud and satisfied.I Registrar to Public Issues 24 . to provide superior quality financial services. clients. Strive to keep all stake-holders (shareholders. Karvy shall aim for complete customer satisfaction. by combining its human and technological resources. Quality Policy Of Karvy: To achieve and retain leadership. investors. Quality Objectives of Karvy Build in-house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services.Junagadh and Bhavnagar branch which was totally free of cost. Achievements of Karvy: Largest mobilizer of funds as per PRIME DATABASE First ISO . Karvy will strive to exceed Customer’s expectations. This also helps in maintaining co-operation between employees. Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as to respond to customer's needs.

Number 1 dealer of Investment Products in India.IDBI Strategic tie-up with Jardine Fleming India Securities Ltd Handled over 500 Public issues as Registrars Handling the Reliance Account which accounts for nearly 10 million account holders First Depository Participant from Andhra Pradesh SWOT ANALYSIS OF KARVY Strengths: Employees are highly empowered. Opportunity: Growth rate of mutual fund industry is 40 to 50% during last year and it expected that this rate will be maintained in future also. Good co-operation between employees. Weaknesses: High Employee Turnover. Strong Communication Network. Number 1 Registrar and Transfer agent in India. Threats: Increasing number of local players. Marketing at rural and semi-urban areas.Ranked as "The Most Admired Registrar” by MARG Handled the largest. Past image of Mutual Fund.ever Public Issue . 25 .

CHAPTER-III INDUSTRY PROFILE 26 .

wheat in Hapur in 1913. trading system has gone through various changes and has now entered into an era of Future trading besides existence physical trading across the world. commodity trading has become an integral part of mankind. With the advancement of civilization. in the industrialized countries like America and Britain. All the countries opened the avenue for introduction of Future trading in commodities in 19 th century. Subsequent to this. people used to exchange goods for goods. Major commodity Future trading platforms opened in the world are Chicago Board of Trade (NYBOT) and New York Mercantile Exchange (NYMEX).. which was called as ‘Barter System’. The history of Commodity Future trading can be traced back to 1688 with the introduction of Future trading in rice in Japan. in 1939. However. the Option trading in cotton was 27 . especially in Futures. raw jute and jute products in 1912 in Calcutta. INDIAN SCENARIO The commodity derivatives markets in India are as old as those of the US. the Futures trading in oilseeds started in 1900 at Bombay. was set up to start trading in cotton Futures. when Bombay Cotton Trade Association Ltd. For example. Future markets provide a platform for buyers and sellers to trade in a huge number of diverse commodities such as agricultural products. This was followed by an increased participation in commodity derivatives. In the early days. many other associations have started Future trading in commodities at different places. but also for retail investors who want to trade in booming commodity market. The main purpose of Future market is to provide a mechanism for successfully managing the price risk associated with commodities. The origin of commodity derivatives markets in India can be traced back to 1875. These markets are not only meant for hedgers. A Commodity derivative is a contract which derives its value from an underlying commodity. speculators and arbitrages. bullion in Bombay in 1920. The first and foremost reason is that commodity represents the fundamental elements of lifestyle of human beings. metals and energy.Ever since the drawn of civilization.

India’s commodity exchanges have come a long way since their opening up in the early twenty first century. Futures’ trading is organized in such goods or commodities as are permitted by the Central Government. nearly 20 regional exchanges are in operation. In India. food grains. in subsequent years. metals and energy. At present. sugar cloth were also prohibited. but also for retail investors who want to trade in booming commodity market. A commodity derivative is a contract which derives its value from an underlying commodity. money and securities”. Apart from these national level exchanges. The main purpose of future market is to provide a mechanism for successfully managing the price risks associated with commodities. These markets are not only meant for hedgers.banned by the government of Bombay to restrict the speculative activity in the cotton market. 28 . vegetable oil. Future market provides a platform for buyer and seller to trade in a huge number of diverse commodities such as agriculture products. National Commodity and Derivatives Exchange (NCDEX) and National Multi Commodity Exchanges are operating to cater to the needs of Indian investors. 1952 defines “goods” as “every kind of movable property other than actionable claims. forward trading in various commodities like oilseeds. mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. MEANING OF COMMODITY DERIVATIVE MARKET: FCRA Forward Contracts (Regulation) Act. to deal with specified commodities in that region. three national level exchanges namely Multi Commodity Exchange of India (MCEX). speculators and arbitrages. all goods and products of agricultural (including plantation).

In the case of financial derivatives. 29 . All this indicates that India can be promoted as a major center for trading of commodity derivatives. Even in the case of physical settlement. physical settlement in commodity derivatives creates the need for warehousing.DIFFERENCE BETWEEN COMMODITY AND FINANCIAL DERIVATIVES: The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. the concept of varying quality of asset does not really exist as far as financial underlings’ are concerned. It is unfortunate that the policies of FMC during the most of 1950s to 1980s suppressed the very markets it was supposed to encourage and nurture to grow with times. Agriculture sector is an important factor in achieving a GDP growth of 8-10%. in addition to being a major consumer of bullion and energy products. However in the case of commodities. financial assets are not bulky and do not need special facility for storage. It employees around 57% of the labor force on a total of 163 million hectares of land. it is not in India alone that derivatives were suspected of creating too much speculation that would be to the detriment of the healthy growth of the markets and the farmers. However. the quality of the asset underlying a contract can vary at times. most of these contracts are cash settled. Due to the bulky nature of the underlying assets. Similarly. Such suspicions might normally arise due to a misunderstanding of the characteristics and role of derivative product. However there are some features which are very peculiar to commodity derivative markets. Agriculture contributes about 22% to the GDP of the Indian economy. WHY ARE COMMODITY DERIVATIVES REQUIRED: India is among the top-5 producers of most of the commodities. It was a mistake other emerging economies of the world would want to avoid.

SPREAD TRADE IN COMMODITIES: In Future trading. because these strategies normally carry less risk. 3. or is derived from. it is an act of entering long (buying) as well as short (selling) position simultaneously in an attempt to make profit. It is common knowledge that prices of commodities. There can be three types of spread one can enter in Commodity Derivative Market. For example. Spread trading can be done at the market price or at desired difference level between the commodities. a spread trade refers to the act of buying one commodity or Futures contract and selling a related one. usually for the same month(inter commodity spread). In this case first and foremost thing that need to be observed is the liquidity present in both the contracts. shares and currencies fluctuate over time. metals. Buy one contract of February of December Gold and at the same time sell one contract of February Gold when the February Gold contract is 100 points higher than the December contract. The possibility of adverse price changes in future creates risk for businesses. Between the same or related commodities traded on two differentexchanges (inter market spread). 2. Basically.It is important to understand why commodity derivatives are required and the role they can play in risk management. A spread can be established between different months of the samecommodity (called an inter delivery spread). Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes. Between the same related commodities. in an attempt to profit from the price difference between the two. the price of another asset. A derivative is a financial contract whose price depends on. 30 . The benefits that can be arrived from entering in spread trading is the lower margin requirement. 1.

thereby ironing out any change in prices that happen subsequently.WHAT CAN COMMODITY MARKET OFFER? If you are an investor.. If you are an importer or an exporter. as they are governed by international price movements are less prone to rigging or price manipulations.  High Leverage – The margins in the commodity futures market are less than the F&O section of the equity market. Commodity futures help you to procure or sell the commodities at a price decided months before the actual transaction. Selling commodity futures contract can give you assured demand at the time of harvest. there is every chance that the price of your produce may come down drastically at the time of harvest. By taking positions in commodity futures you can effectively lock-in the price at which you wish to sell your produce  Assured demand – Any glut in the market can make you wait unendingly for a buyer. here is how this market can help you. commodities futures represent a good form of investment because of the following reasons. commodities futures can help you in the following ways…  Hedge against price fluctuations – Wide fluctuations in the prices of import or export products can directly affect your bottom-line as the price at which you import/export is fixed before-hand.  Diversification – The returns from commodities market are free from the direct influence of the equity and debt market. If you are a large scale consumer of a product.Commodities markets. futures can help you as follows:  Lock-in the price for your produce – If you are a farmer. 31 .  Less Manipulations . If you are a producer of a commodity. which means that they are capable of being used as effective hedging instruments providing better diversification.

By buying commodity futures. you can fix the price of your raw material. in order to make the commodities market more transparent and efficient. Futures trading began to be permitted in several commodities. the raw material cost dictates the final price of your output. Any sudden rise in the price of raw materials can compel you to pass on the hike to your customers and make your products unattractive in the market. There have been over 20 exchanges existing for commodities all over the country. such trading was interrupted suddenly since the mid seventies in the fond hope of ushering in an elusive socialistic pattern of society. the government realized the need for futures trading to strengthen the competitiveness of Indian agriculture and the commodity trade and industry. Still.Control your cost – If you are an industrialist. accorded approval for setting up of national level multi commodity exchanges. and the ushering in of the 21 st century saw the emergence of new ‘National Commodity Exchanges’ with countrywide reach for trading in almost all primary commodities and their products. However these exchanges are commodity specific and have a strong regional focus. INDIAN COMMODITY FUTURES MARKET: India has a long history of commodity futures market. The Government. Accordingly two widest exchanges are there which deal in a wide variety of commodities and which allow nation-wide trading. extending over 125 years. As the country embarked on economic liberalization policies and signed the GATT agreement in the early nineties. They are: 1) National Commodity & Derivatives Exchange (NCDEX) 2) Multi Commodity Exchange of India (MCX) 3) National Multi Commodity Exchange (NMCX) 32 .

nationwide reach. This unique parentage enables it to offer a bouquet of benefits. Life Insurance Corporation of India (LIC). technology and risk management skills. trust.NATIONAL COMMODITY & DERIVATIVES EXCHANGE (NCDEX): National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank). which are currently in short supply in the commodity markets. 33 . NCDEX is the only commodity exchange in the country promoted by national level institutions. National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Indian Farmers Fertilizer Cooperative Limited (IFFCO). CRISIL Limited (formerly the Credit Rating Information Services of India Limited).Canara Bank and Goldman Sachs by subscribing to the equity shares have joined the initial promoters as shareholders of the Exchange. The institutional promoters of NCDEX are prominent players in their respective fields and bring with them institutional building experience. Punjab National Bank (PNB).

Chairman and Managing Director. MukeshAmbani. technology driven de-mutualized on-line commodity exchange with an independent Board of Directors and professionals not having any vested interest in commodity markets. It is committed to provide a worldclass commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by best global practices. 2003. co-operatives and industry associations amongst others. professionalism and transparency. exporters. Mumbai. Today. Presently. Headquartered in the financial capital of India.7. traders. MCX features amongst the world's top three bullion exchanges and top four energy exchanges. NCDEX is regulated by Forward Market Commission in respect of futures trading in commodities. importers. Forward Commission (Regulation) Act and various other legislations. and has permanent recognition from the Government of India for facilitating online trading. 1956.. which impinge on its working. corporate. clearing and settlement operations for commodities futures market across the country. the average daily turnover of MCX is around USD1. Besides. MCX offers a wide spectrum of opportunities to a large cross section of participants including producers/ processors.000 crore 34 . Contracts Act. It obtained its Certificate for Commencement of Business on May 9. It was inaugurated on November 10. MULTI COMMODITY EXCHANGE OF INDIA (MCX): MCX is an independent and de-mutulised multi commodity exchange in India. NCDEX is subjected to various laws of the land like the Companies Act. 2003 under the Companies Act.NCDEX is a public limited company incorporated on April 23. MCX is led by an expert management team with deep domain knowledge of the commodities futures market. 2003. regional trading centre. Stamp Act. Reliance Industries Ltd. 2003 by Mr. It has commenced its operations on December 15. NCDEX is a nation-level.55 bn (Rs.

. Gujarat State Agricultural Marketing Board (GSAMB).987 crore) on April 20. private and public sector marketing of agricultural commodities. and Neptune Overseas Limited (NOL).. National Institute of Agricultural Marketing (NIAM). MCX is well placed to tap the vast potential poised by the commodities market. signifying the efficiency of price discovery. In the first calendar quarter of 2006. Some of them have also lent their personnel to provide technical support to the Exchange management. NMCE is the only Exchange in India to have such investment and technical support from the commodity relevant institutions.17. MCX holds more than 55% market share of the total trading volume of all the domestic commodity exchanges. These institutions are represented on the Board of Directors of the Exchange and also on various committees set up by the Exchange to ensure good corporate governance. NATIONAL MULTI COMMODITY EXCHANGE OF INDIA (NMCE) National Multi-Commodity Exchange of India Ltd has been promoted by commodity-relevant public institutions. Gujarat Agro-Industries Corporation Limited (GAICL). research and training were adequately addressed in structuring the Exchange. Today. Punjab National Bank (PNB) took equity of the Exchange to establish that linkage. 35 . with a record peak turnover of USD3. 2006. Central Warehousing Corporation (CWC). National Agricultural Cooperative Marketing Federation of India (NAFED).April 2006). Being a nation-wide commodity exchange having state-of-the-art infrastructure. viz. The exchange has also affected large deliveries in domestic commodities.. warehousing. While various integral aspects of commodity economy. finance was still a vital missing link. viz. offering multiple commodities for trading with wide reach and penetration. cooperatives.98 bn (Rs.

We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges. It has also established fair and transparent rule-based procedures and demonstrated total commitment towards eliminating any conflicts of interest. It is a zero-debt company. The exchange does not compromise on its delivery provisions to attract speculative volume. Vision National Multi-Commodity Exchange of India Limited is committed to provide world class services of on-line screen based Futures Trading of permitted commodities and efficient Clearing and guaranteed settlement. It is the only Commodity Exchange in the world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). grading and testing in tune with trade practices. following widely accepted prudent accounting and auditing practices. 36 .  improving quality of services rendered by suppliers.  improving efficiency of operations by providing best infrastructure and latest technology. Mission  Improving efficiency of marketing through on-line trading in Dematerialization form.  Implementing best quality standards of warehousing. It has robust delivery mechanism making it the most suitable for the participants in the physical commodity markets.  Minimization of settlement risks. while complying with Statutory / Regulatory requirements.  Rationalizing the transaction fees to optimum level.NMCE is unique in many other respects.  Promoting awareness about on-line features trading services of NMCE across the length and breadth of the country.  Improving facilities for structured finance. Public interest rather than commercial interest guide the functioning of the Exchange.

"The Act Provides that the Commission shall consist of not less than two but not exceeding four members appointed by the Central Government out of them being nominated by the Central Government to be the Chairman thereof. and the Rules framed there under. Kewal Ram. 1952 (FCRA).) Jayashree Gupta. CSS. are the Members of the Commission." The functions of the Forward Markets Commission are as follows: 37 . 1952.STATUTORY FUTURES: FRAMEWORK FOR REGULATING COMMODITY Commodity futures contracts and the commodity exchanges organizing trading in such contracts are regulated by the Government of India under the Forward Contracts (Regulation) Act. Padma Swaminathan. which is overseen by the Ministry of Consumer Affairs and Public Distribution. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act. IES. (Smt. situated at Mumbai. Food & Public Distribution of the Central Government. of India. Currently Commission comprises three members among whom Dr. The nodal agency for such regulation is the ForwardMarkets Commission (FMC). CSS and Dr. which functions under the aegis of the Ministry of Consumer Affairs. FORWARD MARKETS COMMISSION (FMC): Forward Markets Commission (FMC) headquartered at Mumbai is a regulatory authority. is acting as Chairman and Smt. Govt.

including information regarding supply. in exercise of the powers assigned to it by or under the Act.  To collect and whenever the Commission thinks it necessary. demand and prices. to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable.  To keep forward markets under observation and to take such action in relation to them.  To make recommendations generally with a view to improving the organization and working of forward markets  To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considerers it necessary. and to submit to the Central Government. periodical reports on the working of forward markets relating to such goods. To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952. as it may consider necessary. COMMODITIES SELECTED IN PHASE I Bullion  Gold  Silver AFGRI commodities  Soya bean  Soya oil  Rapeseed/Mustard  Seed Rapeseed/  Mustard Seed Oil  Crude Palm oil  RBD Palmolein 38 .

The commodity should have long shelf life and be capable of standardization and gradation. there should be large demand for and supply of the commodity no individual or group of persons acting in concert should be in a position to influence the demand or supply.. the operational techniques and the financial advantages of such trading. market functionaries. unfortunately.0 COMMODITIES INTRODUCED IN PHASE II  Rubber  Jute  Pepper  Chana (Gram)  Guar  Wheat COMMODITY FUTURE DERIVATIVES All the commodities are not suitable for futures trading & for being suitable for futures trading the market for commodity should be competitive. broking agencies and investors at large are. Following the absence of futures trading in commodities for nearly four decades. financial organizations.e. There should be fluctuations in price. the new generation of commodity producers. i. unaware at present of the economic utility. Commodity future market involves particularly different types of forward contracts. A commodity futures contract is essentially a financial instrument. processors. 39 . and consequently the price substantially.

Futures Contract: A commodity futures contract is essentially a financial instrument. Forward contracts are of three types – 1) Specific Delivery & Ready Delivery Contracts 2) Futures Contracts 3) Option Contracts Specific Delivery/Ready Delivery contracts: Specific delivery contracts provide for the actual delivery of specific quantities and types of goods during a specified future period. the operational techniques and the financial advantages of such trading. All contracts in commodities providing for delivery of goods and/or payment of price after 11 days from the date of the contract are "forward" contracts. either immediately or within such period not exceeding 11 days after the date of the contract. which provides for the delivery of goods and the payment of price therefore. a ready delivery contract is one. Following the absence of futures trading in commodities for nearly four decades. unfortunately.Forward contracts FCRA defines forward contract as "a contract for the delivery of goods and which not a ready delivery contract is". market functionaries. broking agencies and investors at large are. the new generation of commodity producers. Under the Act. financial organizations. and in which the names of both the buyer and the seller are mentioned. subject to such conditions as may be prescribed by the Central Government. Already delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. unaware at present of the economic utility. processors. 40 . In market parlance. the ready delivery contracts are commonly known as "spot" or "cash" contracts.

" the right (but not the obligation). it can be traded with ease at a moment’s notice. and these options are known as options on the physical asset. known as the "basis”. Because of the standardized nature of the futures contract. on a designated exchange. A commodity futures contract is a tradable standardized contract. are allowed to be deliverable or tender-able for delivery against the specified futures contrac The parties to the contract are required to negotiate only the quantity to be bought and sold. within a specific time period. the terms of which are set in advance by the commodity exchange organizing trading in it. both inferior and superior.A futures contract is a legally binding agreement between two parties to buy or sell in the future. who pays a market determined price known as a "premium. known as the "settlement date. speculators use these futures contracts to benefit from changes in hardly interested in either taking or receiving deliveries of goods. a specific quantity of a commodity at a specific price. and the price." Although actual delivery of the commodity can take place in fulfillment of the contract. or paid. Option Contract: An option on a commodity futures contract is a legally binding agreement between two parties that gives the buyer. an option may confer the right to buy or sell the underlying asset directly. prices and are . though quite a few other similar varieties. most futures contracts are actually closed out or "offset" prior to delivery. The buyer and seller of a futures contract agree now on a price for a product to be delivered. Exercise of the option will result in the person being deemed to have entered into a futures contract at a specified price known as the "strike price. The futures contract is for a specified variety of a commodity." In some cases. to exercise his option. 41 Therefore. The Exchange prescribes everything else. for at a set time in the future.

COMMODITY FUTURES TRADING CYCLE:
NCDEX trades commodity futures contracts having one-month, two-month and
three-month expiry cycles. All contracts expire on the 20 th of the expiry month. Thus
a January expiration contract would expire on the 20 th of January and a February
expiry contract would cease trading on the 20th February. If the 20th of the expiry
month is a trading holiday, the contracts shall expire on the previous trading day.
New contracts will be introduced on the trading day following the expiry of the near
month contract.
Procedure for Individual investor to start trading in Commodity Futures
Market can be as follows:
Selection of Broker:
A trustworthy, reliable, efficient, effective & innovative broker, having
membership to any of the Exchange like MCX / NCDEX etc. would be in Investor’s
interest. Broker should be such that recognizes investors’ needs & aspirations & work
as a dedicated team to deliver highly effective & customized solutions to investors
risk management needs.
Information about Self:
After selecting a broker, investor will be asked to provide information that is
personal & financial. A member client agreement should be signed between the
broker & investor. Investor should give photographs, bank details & should possess
normal DMAT Account or broker opens that account for him/her. If trading is
intended with delivery of commodities then Commodity DMAT Account is been
opened.

42

Depositing the Margin:
In order to trade futures contracts, investor has to deposit margins in cash with
broker. There are two types of margins, namely; initial margin & mark to market
margin.

i) Initial MarginInitial Margin is set by the exchanges on basis of volatility in the particular
commodity & is a percentage of the contract.
ii) Mark to market MarginAt the end of the day, the contract is marked to market; meaning trader’s
account is credited or debited based on the profit/ loss made during the session. On
this profit or loss there broker can charge margin that is nothing but mark to market
margin.

INTRADAY TRADING:
Then as per individual investors wish he can buy or sell commodities online.
Just he has to specify which commodity & what price is he going to buy or sell.
Electronic terminals are used for this trading at various broking offices that provides
the same information countrywide. This trading process is called as, “Intraday
Trading”.

Benefit of this online trading is that it provides a secure, transparent, fast and
user-friendly system. It leads to better price discovery of commodities like Bullion,
Metals and Agro products by bringing large number of Buyers and Sellers on a
common National and International platform.

43

CLEARING TRADES ON COMMODITY EXCHANGE
All trades on Commodity Exchange are supported by an initial
margin. At the End-of day Commodity Exchange does mark-to-market of all the open
positions. This activity results into final position of all members in respect to booked
losses or losses on open positions. Members make the shortfalls good by way of payins to Commodity Exchange by next day and the members in profit on such positions
are given the necessary credits. These payments are processed electronically through
a countrywide network of clearing banks.
SETTLEMENT OF THE CONTRACT AND DELIVERY
A contract has a life cycle of two months. At Commodity Exchange, 5 days before
the expiry of a contract, the contract enters into a tender period. At the start of the
tender period, both the parties must state their intentions to give or receive delivery,
based on which the parties are supposed to act or bear the penal charges for any
failure in doing so. Those who do not express their intention to give or receive
delivery at the beginning of tender period are required to square-up their open
positions before the expiry of the contract. In case they do not their positions are
closed out at 'due date rate'. The links to the physical market through the delivery
process ensures maintenance of uniformity between spot and futures prices.

LIMITATIONS OF COMMODITY FUTURE MARKET:
 Commodity market is very difficult to predict. Commodity prices depend upon
region, monsoon, transportation cost, demand-supply theory, import/ export policies
& Global market trends. So commodity market experience volatility that cannot be
predicted easily.

Without knowing the spot market for commodities it is very difficult to play with

Future market. In capital market it depends upon Companies performance, decisions,
44

We study the cost-of-carry model to understand the dynamics of pricing that constitute the estimation of fair value of futures the cost of carry model. 45 . the total loss amount will be very huge. In an active futures market. So if at all there is a loss. it is like a game of luck to the investor. mergers. Further. but in the case of Commodity market there are so many regions for the market movement.  Customer has to deposit the margin amount that is based on volatility of commodity plus brokerage that is deducted from total losses made. The prices are freely and competitively derived. etc. the process of price discovery continues from the market’s opening until its close. there are definite regions to move up & down in the market. Future prices are therefore considered to be superior to be administered prices or the prices that are determined privately. We try to understand the pricing of commodity futures contracts and look at how the futures price is related to the spot price of the underlying asset.long run plans.  Commodity market not yet developed in India so it is less reliable.  Commodity market gives high return but with multiplier of high risk PRICING COMMODITY FUTURES: The process of arriving at a figure at which a person buys and another sells a futures contract for a specific expiration date is called price discovery. the low transaction costs and frequent trading encourages wide participation in futures markets lessening the opportunity for control by a few buyers and sellers. In this aspect it is very risky market.

He incurs the cash outlay for buying the asset and he also incurs costs for storing it if instead he buys the asset in the forward market.THE COST OF CARRY MODEL: Use arbitrage arguments to arrive at the fair value of futures. This means that there is a convergence of the futures price to the price of the underlying asset. The closing price for the April gold futures contract is the closing value of gold in the spot market on that day. The buyer who needs an asset in the future has the choice between buying the underlying asset today in the spot market and holding it. THE FUTURES BASIS: The cost-of-carry model explicitly defines the relationship between the futures price and the related spot price. the futures price and the spot price converge. We see that as a futures contract nears expiration. A futures contract is nothing but a forward contract that is exchange traded and that is settled at the end of each day. If he buys it in the spot market today. he does not incur an initial outlay. we treat the forward and the futures market as one and the same. However the costs of holding the asset are now incurred by the seller of the forward contract who charges the buyer a price that is higher than the price of the asset in the spot market. For pricing purposes. 46 . The difference between the spot price and the futures price is called the basis. Towards the close of trading on the day of settlement. the basis reduces. the basis reduces to zero. VARIATION OF BASIS OVER TIME As the time to expiration of a contract reduces. In involves opportunity costs. This happens because if the futures price is above the spot price during the delivery period it gives rise to a clear arbitrage. or buying it in the forward market.

speculators and arbitragers.. As traders start exploiting this arbitrage opportunity the demand for the contract will increase and futures prices will fall leading to the convergence of the future price with the spot price. processors etc. for instance farmers. Hedgers could be government institutions.In case of such arbitrage the trader can short his futures contract. By selling his crop forward. it could make the outcome worse. This will lead to a profit equal to the difference between the futures price and spot price. Hedgers Many participants in the commodity futures market are hedgers. PARTICIPANTS IN COMMODITY MARKET: For a market to succeed/ it must have all three kinds of participant’s – hedgers. Commodity markets give opportunity for all three kinds of participants. 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. that it makes the outcome more certain. As more traders take a long position the demand for the particular asset would increase and the futures price would rise nullifying the arbitrage opportunity. buy the asset from the spot market and make the delivery. he obtains a hedge by locking in to a predetermined price. What it does however is. Hedging does not necessarily improve the financial outcome. trading companies and even other participants in the value chain. private corporations like financial institutions. The confluence of these participants ensures liquidity and efficient price discovery on the market. 47 . ginners. If the futures price is below the spot price during the delivery period all parties interested in buying the asset in the spot marked making a profit equal to the difference between the future price and the spot price. indeed. This risk might relate to the price of any commodity that the person deals in. who are influenced by the commodity prices. extractors. They use the futures market to reduce a particular risk that they face.

This enables futures traders to take a position in the underlying commodity without having to actually hold that commodity. Speculators If hedgers are the people who wish to avoid price risk. Similarly. These are the person who takes positions in the market & assume risks to profit from price fluctuations in fact the speculators consume market information make forecasts about the prices & put money in these forecasts. An entity having an opinion on the price movements of a given commodity can speculate using the commodity market. speculators are those who are willing to take such risk. the holder essentially makes a legally binding promise or obligation to buy the underlying security at some point in the future (the expiration date of the contract). The commodities futures markets provide speculators with an easy mechanism to speculate on the price of underlying commodities. This is called a short hedge. Buying futures simply involves putting in the margin money. This is known as long hedge. or is likely to own the asset and expects to sell it at some time in the future. To trade commodity futures on the NCDEX. A company that wants to sell an asset at a particular time in the future can hedge by taking short futures position. With the purchase of futures contract on a commodity. a short hedge is appropriate when the hedger already owns the asset. However. it is easy to buy the shares and hold them for whatever duration he wants to.There are basically two kinds of hedges that can be taken. speculating in commodities is not as simple as speculating on stocks in the financial market. a company that knows that it is due to buy an asset in the future can hedge by taking long futures position. 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. A short hedge is a hedge that requires a short position in futures contracts. commodities are bulky products and come with all the costs and procedures of handling these products. While the basics of speculation apply to any market. a customer must open a futures trading account with a commodity derivatives broker. 48 . As we said.

However. The cost-of-carry ensures that futures prices stay in tune with the spot prices of the underlying assets. even if there exists a mispricing. This activity termed as arbitrage. government 49 of India. To capture mispricing that result in overpriced futures. the arbitrager must sell spot and buy futures. if two assets are equivalent from the point of view of risk and return. the arbitrager must sell futures and buy spot. they should sell at the same price. buying the spot and holding it or selling the spot and investing the proceeds. a person who holds the underlying may not want to sell it to profit from the arbitrage REGULATORY FRAMEWORK FOR COMMODITY TRADING IN INDIA: At present there are three tiers of regulations of forward/futures trading system in India. arbitrage helps to equalise prices and restore market efficiency. Forward 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. In the case of investment commodities. whereas to capture mispricing that result in underpriced futures. The buying cheap and selling expensive continues till prices in the two markets reach equilibrium. arbitrage opportunities arise. If the price of the same asset is different in two markets. mispricing would result in both. Hence. Whenever the futures price deviates substantially from its fair value.Arbitrage A central idea in modern economics is the law of one price. This states that in a competitive market. in the case of consumption assets which are held primarily for reasons of usage. namely.

to prevent systematic risk of default by one major operator or group of operators). which impinge on their working. a major default could create a chain reaction.Commission(FMC) and commodity exchanges.e. thereby affecting interests of society at large. This could have undesirable influence on the spot prices.e. Food and Public Distribution). RULES GOVERNING COMMODITY DERIVATIVES EXCHANGES: The trading of commodity derivatives on the NCDEX is regulated by Forward Markets Commission (FMC). Stamp Act. which deal with forward contracts. settlement and management of the exchange so as to protect and promote the interest of various stakeholders. Regulation is also needed to ensure fairness and transparency in trading. Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i. Under the Forward Contracts (Regulation) Act. Forward Commission (Regulation) Act and various other legislations. Regulation is also needed to ensure that the market has appropriate risk management system. market integrity (i. which are granted recognition by the central government (Department of Consumer Affairs. they are subjected to various laws of the land like the Companies Act. In the absence of regulation. to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and to protect and 50 . forward trading in commodities notified under section 15 of the Act can be conducted only on the exchanges. Contracts Act. are required to obtain certificate of registration from the FMC Besides. Ministry of Consumer Affairs. All the exchanges. particularly non-member users of the market. The resultant financial crisis in a futures market could create systematic risk. In the absence of such a system. The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. 1952. unscrupulous participants could use these leveraged contracts for manipulating prices. clearing. Proper regulation is needed to create competitive conditions.

promote interest of customers/ nonmembers. The FMC has also mandated all the exchanges following open outcry system to display at a prominent place in exchange premises. By making further purchases/sales relatively costly. clearing and settlement which is more customer/friendly. Besides these regulatory measures. 3.R Act provides that a client’s position cannot be appropriated by the member of the exchange. 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. 4. etc. 5. the price rise or fall is sobered down. Circuit breakers or minimum/maximum prices. The limit is imposed operator-wise/ and in some cases. The FMC has also prescribed simultaneous reporting system for the exchanges following open out cry system. telephone number of the officer of the commission who can be contacted for any grievance. The FMC is persuading increasing number of exchanges to switch over to electronic trading. also member wise. The website of the commission 51 . except when a written consent is taken within three days time. Sometimes limit is also imposed on intra-day net open position. These are prescribed to prevent futures prices from failing below as rising above not warranted by prospective supply and demand factors. Skipping trading in certain derivatives of the contract closing the market for a specified period and even closing out the contract. 2. It prescribes the following regulatory measures: 1. address. Circuit filters or limit on price fluctuations to allow cooling of market in the event of abrupt upswing or downswing in prices. These extreme are taken only in emergency situations. This measure is also imposed on the request of the exchange.C. the F. Limit on net open position as on close of the trading houses. These steps facilitate audit trail and make it difficult for the members to indulge in malpractice like trading ahead of clients. the name. This measure is imposed only on the request of the exchange.

RULES GOVERNING INTERMEDIARIES: In addition to the provisions of the Forward Contracts (Regulation) Act 1952 and rules framed there under. For the sake of convenience/these have been divided into two main divisions pertaining to trading and clearing. The exchange has the right to inspect equipment and software used for the purposes of accessing the trading system at any time. whenever they visit exchanges. A trading member has a non-exclusive permission to use the trading system as provided by the exchange in the ordinary course of business as trading member. exchanges are governed by its own rules and bye laws(approved by the FMC). Trading on the exchange is allowed only through approved workstation(s) located at locations for the office(s) of a trading member as approved by the exchange. In this section we have brief look at the important regulations that govern NCDEX. The NCDEX provides an automated trading facility in all the commodities admitted for dealings on the spot market and derivative market. Officers of the FMC have been instructed to meet the members and clients on a random basis. He does not have any title rights or interest whatsoever with respect to trading system/its facilities/ software and the information provided by the trading system. Each trading member is required to have a unique identification number which is provided by the exchange and which will be used to log on (sign on) to the trading system. The cost of the equipment and software supplied by the exchange/installation and maintenance of the equipment is borne by 52 . If LAN or any other way to other workstations at any place connects an approved workstation of a trading Member it shall require an approval of the exchange. to ascertain the situation on the ground. For the purpose of accessing the trading system/the member will install and use equipment and software as specified by the exchange at his own cost.also has a provision for the customers to make complaint and send comments and suggestions to the FMC. instead of merely attending meetings of the board of directors and holding discussions with the office bearers.

An approved user can access the trading system through a password and can change the password from time to time.the trading member and users Trading members are entitled to appoint. 53 Traders generated on the system are . The trading member or its approved users are required to maintain complete secrecy of its password. Approved user shall be required to change his password at the end of the password expiry period. The trading member has to disclose to the exchange at the time of order entry whether the order is on his own account or on behalf of constituents and also specify orders for buy or sell as open or close orders. TRADE OPERATIONS: Trading members have to ensure that appropriate confirmed order instructions are obtained from the constituents before placement of an order on the system. Trading members are solely responsible for the accuracy of details of orders entered into the trading system including orders entered on behalf of their constituents. Each approved user is given a unique identification number through which he will have access to the trading system. Any trade or transaction done by use of password of any approved user of the trading member. Each trading member is permitted to appoint a certain number of approved users as notified from time to time by the exchange. In case of trading members/other than individuals or sole proprietorships/suchcertification program has to be passed by at least one of theirdirectors/employees/partners/members of governing body. They have to keep relevant records or documents concerning the order and trading system order number and copies of the order confirmation slip/modification slip must be made available to the constituents. (subject to such terms and conditions/as may be specified by the relevant authority) from time to time Authorized persons and Approved users. Trading members have to pass a petrifaction program/which has been prescribed by the exchange. The appointment of approved users is subject to the terms and conditions prescribed by the exchange. will be binding on such trading member.

Members can place orders on the trading system during these sessions. in which trade cancellation can be effected. price limits. These are stored by the system but get traded only once the market opens for trading on the following working day.  CONTRACT EXPIRATION: Derivatives contracts expire on a pre-determined date and time up to which the contract is available for trading. rules and regulations. Where a trade cancellation is permitted and trading member wishes to cancel a trade. from time to time.  TRADING DAYS: The exchange operates on all days except Saturday and Sunday and on holidays that it declares from time to time. Other than the regular trading hours. This is notified by the exchange in advance.irrevocable and blocked in 1. within the regulations prescribed by the exchange as per these bye laws.  TRADING PARAMETERS: The exchange from time to time specifies various trading parameters relating to the trading system. Every trading member is required to specify the buy or 54 . it can be done only with the approval of the exchange. matching rules and other parameters pertaining to each or all of these sessions is specified by the exchange to the members via its circulars or notices issued from time to time. The contract expiration period will not exceed twelve months or as the exchange may specify from time to time. outside trading hours. the exchange can extend or reduce the trading hours by notifying the members. In case necessary. trading members are provided a facility to place orders offline i.  TRADING HOURS AND TRADING CYCLE: The exchange announces the normal trading hours/open period in advance from time to time. trade books.e. The types of order books. The exchange specifies from time to time the market types and the manner if any. Trading cycle for each commodity/derivative contract has a standard period. during which it will be available for trading.

The margin is charged so as to cover one-day loss that can be countered on the position on 99% of the days. It specifies parameters like lot size in which orders can be placed. MARGIN REQUIREMENTS Subject to the provisions as contained in the exchange bye-laws and such other regulations as may be in force.sell orders as either an open order or a close order for derivatives contracts. The exchange levies initial margin on derivatives contracts using the concept of Value at Risk (VaR) or any other concept as the exchange may decide from time to time. the exchange can at its discretion undertake to carry out on behalf of the trading member the necessary functions which the trading member is eligible for. has to deposit a margin with exchange authorities. price steps in which shall be entered on the trading system. Only requests made in writing in a clear and precise manner by the trading member would be considered. The trading member is accountable for the functions executed by the exchange on its behalf and has to indemnity the exchange against any losses or costs incurred by the exchange. It also prescribed the number of days after which Good Till Cancelled orders will be cancelled by the system. The exchange specifies the minimum disclosed quantity for orders that will be allowed for each commodity/derivatives contract. FAILURE OF TRADING MEMBER TERMINAL: In the event of failure of trading members workstation and/ or the loss of access to the trading system. position limits in respect of each commodity etc. every clearing member/in respect of the trades in which he is party to. Additional margins may be levied for deliverable 55 . The exchange also prescribes different order books that shall be maintained on the trading system and also specifies various conditions on the order that will make it eligible to place it in those books.

On failure to deposit margin/s as required under this clause. The procedure for refund/adjustment of margins is also specified by the exchange from time to time. on the basis of VaR from the expiry of the contract till the actual settlement date plus a mark-up for default. the exchange/clearing house can withdraw the trading facility of the trading member. sell. or indulge in any unfair trade practices including market manipulation. Indulge in any act. The exchange can impose upon any particular trading member or category of trading member any special or other margin requirement. This includes the following. accounts and records for the purpose of market manipulation. which is calculated to create a false or misleading appearance of trading. which are likely to have effect of artificially. the clearing house releases all margins. fi Effect. as well as the method of valuation and amount of securities that would be required to be deposited against the margin amount. 56 . Indulge in falsification of his books. raising or depressing the prices of spot/derivatives contracts.  Buy. UNFAIR TRADE PRACTICES: No trading member should buy. deal in derivatives contracts in a fraudulent manner. which are not genuine. The margin has to be deposited with the exchange within the time notified by the exchange.positions. The exchange also prescribes categories of securities that would be eligible for a margin deposit. sell commodities/contract on his own behalf or on behalf of a person associated with him pending the execution of the order of his constituent or of his company or director for the same contract. After the pay-out. take part either directly or indirectly in transactions.  Delay the transfer of commodities in the name of the transferee. resulting in reflection of prices.

in cash-together with penalty as stipulated by the exchange deals entered into through the exchange. LAST DAY OF TRADING: Last trading day for a derivative contract in any commodity is the date as specified in the respective commodity contract. RULES GOVERNING INVESTOR GRIEVANCES. For the Purpose of clarity. ARBITRATION: In matters where the exchange is a party to the dispute. the civil courts at Mumbai have exclusive jurisdiction and in all other matters.  Either take opposite position to an order of a constituent or execute opposite orders which he is holding in respect of two constituents except in the manner laid down by the exchange. When acting as an agent. If the last trading day as specified in the respective commodity contract is a holiday. the trading members/ clearing members have to give delivery information as prescribed by the exchange from time to time. On the expiry date of contracts. the last trading day is taken to be the previous working day of exchange. The clearing member cannot operate the clearing account for any other purpose. execute a transaction with a constituent at a price other than the price at which it was executed on the exchange. we define the following: 57 . proper courts within the area covered under the respective regional arbitration center have jurisdiction in respect of the arbitration proceedings falling/conducted in that regional arbitration center. If a trading member/clearing member fails to submit such information during the trading hours on the expiry date for the contract/the deals have to be settled as per the settlement calendar applicable for such deals.

difference or dispute are to be referred to a panel of three arbitrators. the date of dispute is deemed to have arisen on.  Applicant means the person who makes the application for initiating arbitrate proceedings. whether or not there is a claim against such person. If the value of claim.1/1A) along with the following enclosures.  Respondent means the person against whom the applicant lodges an arbitration application.25 Lakh on the date of application/then such claim. The statement of case(containing all the relevant facts about the dispute and relief sought). Arbitrator means a sole arbitrator or a panel of arbitrators. 2. whichever is later. difference or dispute arises between agent of the member and client of the agent of the member. Where any claim.25 Lakh. The date of receipt of communication of warehouse refusing to transfer the commodities in favor of the constituent. difference or dispute. difference or dispute is up to Rs. invoice and delivery challan. to whom such agent of the member is affiliated. is impeded as a party. the member. in such claim. 1. difference or dispute is more than Rs. 3. If the value of the claim. then they are to be referred to a sole arbitrator. PROCEDURE FOR ARBITRATION: The application has to submit to the exchange application for arbitration in the specified form (Form No. The date of expiry of 5 days from the date of lodgment of dematerialized request by the constituent for transfer with the seller. 2. Copies of the relevant contract notes. The statement of account`ts 3. In case the warehouse refuses or fails to communicate to the constituent the transfer of commodities. 1. 58 . Copies of members – constituent agreement 4.

pork bellies. soya beans. are traded on the futures exchange. They are traded on futures market and are referred to as “Energy Futures”. METALLURGICAL COMMODITIES The metallurgical category includes genuine metals and petro products. seeds. Animal products like live hogs. GOLD COMMODITY FUTURE MARKET: Introduction 59 . New York Mercantile Exchange (NYMEX) is the world’s leading energy futures exchange. soya beans and soya bean meal. etc. dried cocoon. gasoline and propane. form a part of grains. crude oil.. Though all of them form a part of agricultural commodities. whereas commodities like cocoa. etc. eggs and poultry products form a part of meat futures. cotton. In general.TYPES OF COMMODITY FUTURE CONTRACTS: AGRICULTURAL COMMODITIES Commodities such as corn. coffee. soft commodities and meat futures. coffee. live cattle. corn. ENERGY COMMODITES Petroleum products consist of heating oil. sugar. Red beans. the precious metals are in relative short supply and they retain their value irrespective of the conditions of the economy. The metals are further grouped into precious and industrial metals. wheat. etc. form a part of soft commodities. they are further segregated into grains. cotton yarn and raw sugar. which indeed form a part of daily consumption.

not least because inheritance laws in the middle of the twentieth century lent a great desirability to anonymity. Gold in Indian Scenario: Gold is valued in India as a savings and investment vehicle and is the second preferred investment behind bank deposits. do have counter-party risk. due to rising and volatile prices and a poor monsoon season. As much as two thirds of gold’s total accumulated holdings relate to “store of value” considerations. and high-cartage jewelry bought primarily in developing countries as a vehicle for savings. India is typically also the largest purchaser of coins and bars for investment (>80tpa). and partly a commodity. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds. which unlike gold.Gold is a unique asset based on few basic characteristics. and gold used in industry. although last year it had to concede first place to Japan in the wake of the heavy buying in the first quarter due to fears for the stability of the Japanese banking system. with a ratio of financial assets-to-GDP of 93%. Thus. however. First. Less than one third of gold’s total accumulated holdings can be considered a commodity. Holdings in this category include the central bank reserves. It is an internationally recognized asset that is not dependent upon any government’s promise to pay. the jewelry bought in Western markets for adornment. India is the world’s largest consumer of gold in jewelry The hoarding tendency is well ingrained in Indian society. gold is primarily a monetary asset. and coin 60 . this dropped back to 490 tons. annual Indian demand for gold in jewelry exceeded 600 tons. Gold’s circulates within the system and roughly 30% of gold jewelry fabrication is from recycled pieces. in 2002. while commodities have declined. In 1998-2001 inclusive.Some analysts like to think of gold as a “currency without a country’. Gold has maintained its value in after-inflation terms over the long run. it is primarily a monetary asset. Indian people are renowned for saving for the future and the financial savings ratio is strong. private investments. The distinction between gold and commodities is important.

. is still gold. China. Argentina. 13 banks are active in the import of gold. but is also a reflection of the increase in price.and bar demand dropped to 67 tons.  The gold hoarding tendency is well ingrained in Indian society.  In July “1997 the RBI authorized the commercial banks to import gold for sale or loan to jewelers and exporters. Australia.  Domestic consumption is dictated by monsoon/harvest and marriage season. Mali. At present. Canada. the wealth she takes with her when she marries and which remains hers. China. Mexico.5 percent in 2001. Chile. Papua New Guinea.  This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8. Indonesia. Indian jewelry off take is sensitive to price increase and even more so to volatility. Russia. 61 . The Indian bride’s “Streedhan”. United States. although this decline in tonnage since 1998 is also due in part to increasing competition from white and brown goods and alternative investment vehicles. Philippines. Indian jewelry off take is sensitive to price increases and even more so to volatility. Major gold production countries:  South Africa. India Gold Market  Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits  India is the world’s largest consumer of gold to jewellery as investment. Peru. Zimbabwe& Colombia. however (thus giving gold an important role in the “empowerment” of women in India). Brazil. Uzbekistan.

under virtually any circumstances. So holding a portion of your portfolio in gold can be invaluable in moments when cash is essential. Nations may rise and fall. Gold proved to be the most effective means of raising cash during the 1987 stock market crash. and again during the 1997/98 Asian debt crisis. holidays and other occasions. • Gold is the ideal gift: In many cultures. Gold is an ideal diversifier. They are appreciated as much for their intrinsic value as for their mystical appeal and beauty. And because gold is available in a wide range of sizes and denominations. and timberland. real estate. • Gold is an effective diversifier: Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. This cannot be said of most other investments. currencies come and go. and above all. gold has been prized for its rarity. graduations. many investors turn to gold because it is an important and secure asset that can be tapped at any time. but gold endures. Gold is also more liquid than many alternative assets such as venture capital. including stocks of the world’s largest corporations.What makes Gold Special? • Timeless and Very Timely Investment: For thousands of years. its beauty. Gold bullion coins make excellent gifts for birthdays. But there is another side to gold that is equally important. whether for margin calls or other needs. • Gold is highly liquid: Gold can be readily bought or sold 24 hours a day. In today’s uncertain climate. the forces that influence most financial assets. because the economic forces that determine the price of gold are different from. weddings. These advantages are currently attracting considerable attention from financial professionals and sophisticated investors worldwide. in large denominations and at narrow spreads. you don’t need to be wealthy to give the gift of gold. gold serves as a family treasure or a wealth transfer vehicle that is passed on from generation to generation. and that is its day-to-day performance as a stabilizing influence for investment portfolios. for its unique characteristics as a store of value. 62 . and in many cases opposed to.

Consequently. This is not to say that exogenous shifts in flow demand will have no influence at all on the price of gold. On these occasions. it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium. no such upward price pressure will be observed in the gold market in the presence of a positive demand shock. What makes Gold different from other commodities? The flow demand of commodities is driven primarily by exogenous variables that are subject to the business cycle. in the case of gold. Greater consistency of performance leads to a desirable outcome — an investor whose expectations are met. The extent of this to dampening effect 63 . However.• Gold responds when you need it most: Recent independent studies have revealed that traditional diversifiers often fall during times of market stress or instability. drive the price of the commodity upwards. buffer stocks can be supplied with perfect elasticity. most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction. during both stable and unstable financial periods. Although the demand for gold as an industrial input or as a final product (jewellry) differs across regions. The existence of a sophisticated liquid market in gold has. all else being equal. provided a mechanism for gold held by central banks and other major institutions to come back to the market. it is our contention that. If this argument holds true. over the past 15 years. There is no “cushioning” effect of a diversified portfolio — leaving investors disappointed. However. one would expect that a sudden unanticipated increase in the demand for a given commodity that is not met by an immediate increase in supply should. such as GDP or absorption. but rather that the large supply of inventory is likely to dampen any resultant spikes in price. a small allocation of gold has been proven to significantly improve the consistency of portfolio performance.

In the gold industry such time lags are typically very short. and thirdly. set it apart from other commodities: firstly. Of course. One would expect that the time required convert bullion into producer inventory is short. relative to other commodities which may be less liquid and less homogenous than gold and may require longer time scales to extract and be converted into usable producer inventory. gold is indestructible and fungible. One consequence of these attributes is a dramatic reduction in gestation lags. because of the variability of demand.depends on the gestation lag within which liquid inventories can be converted in industrial inputs. secondly. Gold has three crucial attributes that. 64 . assayed gold is homogeneous. the price responsiveness of each commodity will depend in part on precautionary inventory holding. the inventory of aboveground stocks is astronomically large relative to changes in flow demand. making them more vulnerable to cyclical price volatility. given low search costs and the well-developed leasing market. combined.

CHAPTER-IV DATA ANALYSIS AND INTERPRETATION 65 .

Fig 3. US dollar movement against other currencies.2 FACTORS INFLUENCING GOLD PRICE Rising Demand       Rise in Investor demand. Robust Jewelry intake. Geo-political concerns. Central Banks diversifying into bullion.1 Fig 3. 66 . Indian rupee movement against the US dollar.

Fall in Supply  Central Bank Sales Slowing and Massive De-Hedging  Gold Mine Production Fig 3.3 GOLD SPOT PRICES: 2008 – 2010 67 .

Ahmedabad inclusive of Custom Duty. 1 Not more than 999.pdf None SILVER COMMODITY FUTURE MARKETS: Introductions 68 .Fig 3. exclusive of local sales tax/VAT.9 fineness bearing a serial number and identifying stamp of a refiner approved by the Exchange. and any other charges and levies 1 Kg 1 kg None Re.4 CONTRACT SPECIFICATIONS: Name of Commodity Gold Ticker symbol Gold Trading System NCDEX Trading System Basis Unit of trading Delivery unit Quotation/base value Tick size Quality Specification Quantity variation Ex .ncdex.com\downloads\refiners_gold. List of approved refiners is available at: www.

” cupellation” was found out in order to extract silver from silver ores around 2500BC. Rather. the savvy investor has to keep track of the secular trends as well as the cyclic patterns in the forum. Along with the bloom of the emerging regions. A process. First attempt to mine silver is said to be have been made around 3000 BC in the areas of Anatolia. Old books indicate that at that time it was extracted from lead. History Silver is one of the oldest found metals on earth and it had been used in jewelry and utensils since 4th millennium B. Silver coin as a currency was first introduced in the eastern Mediterranean in 550 B. This led to the discovery of more silver mines around the world. In sketching out the likely path of the market. the newcomers by the billions demand their share of upscale products – ranging from fancy goblets to mobile phones – that contain the white metal. One reason for the cheery presage stems from the use of the white metal as a raw material during the greatest build-out of infrastructure in the history of the planet.C. Another factor springs from the retail end of the chain of production. 69 . It goes without saying that the market for silver will not vault skyward in a single straight line. Peru and Bolivia were found. With bulging wallets. It started gaining popularity as a medium of exchange since then. a horde of consumers is piling into the global marketplace for the first time. the upward trek will be erratic and confounding. The discovery of the American countries marked an important twist in the history of silver as the major silver mines in Mexico.C.In a number of ways. the outlook for the silver market is even brighter than that of gold. It was used as currency in many civilizations.

According to the Indian standards. The idea of silver as a holding asset and as a source of coinage is losing popularity to the idea of silver as an industrial commodity. The demand of silver in 2002 from these sectors was:  Photography sector – 342 million ounces  Jewelry sector – 205 million ounces  Silverware sector – 259 million ounces  The countries that are the major consumers of silver are: 70 . Silver mines produce a small amount of silver that is 25% of the world’s total production and the rest of it is derived as a by-product from gold mines (15%).5 999 970 925 916 Over view Silver is produced throughout the world but an interesting fact remains that the primary source of silver is not the silver mines but the other sources of silver.There have been important technological improvements till now. Silver that is found with some percentage of other elements in it is called impure silver. which have resulted in the increased production of silver and have made it an unmatchable commodity. About 95% of this demand is contributed largely by three industrial sectors namely photography. jewelry and silverware sectors. copper mines (24%). The total production of silver in the world figures to be around 615 million ounces and Mexico is the leading silver producing country. That is why it is graded upon its fineness. lead and zinc mines (34%) and other sources. The total demand of silver in the world amounts to be around 29 thousand tons. silver is graded into six categories Grade Finenes s 9999 9995 999 970 925 916 999.9 999.

It is found in the metallic state and also in a large amount of minerals mainly in argentite. silver has been regarded as a form of money and store of value. For more than four thousand years. since the end of the silver standard. as it is considered as a precious metal second to gold but its contribution in the various industrial sectors as a raw material makes it unmatchable. coins and tableware. Bolivia. Germany. These silver dollar coins played the role of an international trading currency for nearly four hundred years. an international silver specie standard came into existence in conjunction with the Spanishpieces of eight. may be used as an investment. It is used in making various kinds of jewelry. That is why it is called argentums in Latin. United States. lead. No other metal can replace silver as it has an endless number of uses. India Silver as an investment Silver. though it’s unusual properties makes it very different from them. Canada. silver has lost its role as legal tender in the United States. However. In 71 . like other precious metals. France. The silver specie standard was widespread fom the fall of the Byzantine Empire until the nineteenth century. The colored shiny element that is highly ductile and malleable and is used in making jewelry. It is also used in chemical experiments as it provides a high electrical and thermal conductivity. Following the discovery in the sixteenth century of large deposits of silver at the Cerro Rico in Potosi. Silver is a metal that is associated with metals like gold. United Kingdom. zinc and copper. Japan. Silver standard The silver standard is a monetary system in which the standard economicunit of account is a fixed weight of silver.Mexico. Italy.

540 tons were used in the electromagnets used for enriching uranium during World War II (mainly because of the wartime shortage of copper).  Despite this. Characteristics  Silver is a very ductile and malleable (slightly harder than gold) monovalent coinage metal with a brilliant white metallic luster that can take a high degree of polish.  Silver is stable in pure air and water. following Queen Anne's proclamation. revolutions in Latin America interrupted the supply of silver dollars (pieces of eight) that were being produced at the mints in Potosi. and Lima. Germany changed over to the gold standard in conjunction with the new gold mark coin.1704.  Silver also has the lowest contact resistance of any metal. to British India.  It has the highest electrical conductivity of all metals. leaving only China and the British colony of Hong Kong on the silver standard. but it did not extend to the North American colonies. even higher than copper. the master of the Royal Mint. all other nations changed to gold. Following the Napoleonic wars. or to South-East Asia. Mexico. The United States changed over to gold 'de facto' in the same year. the British West Indies became one of the first regions to adopt a gold standard in conjunction with the Spanish gold doubloon coin. In 1717. Silver producing countries 72 . The British gold standard initially extended to some of the British colonies. The silver standard finally came to an end when it was abandoned by China and Hong Kong in 1935. 13. In 1873. introduced a new mint ratio as between silver and gold. but its greater cost and tendency to tarnish have prevented it from being widely used in place of copper for electrical purposes. Canada adopted a gold standard in 1853 as did Newfoundland in 1865. notably the Australasian colonies and the Southern African colonies. Another notable exception is in high-end audio cables. At the same time. and this had the effect of putting Britain 'de facto' unto a gold standard. and over the next 35 years. Sir Isaac Newton. the United Kingdom introduced the gold sovereign coin and formally adopted a gold standard in 1821.

It contributes to about 15% of the world’s total production.8 million ounces)  Canada (40.2 million ounces)  Iran (2. Mexico (99 million ounces)  Peru (98.6 million ounces)  Japan (2.1 million ounces) The above-mentioned figures are the silver production figures of the countries in 2004.e.1 million ounces)  Sweden (9.3 million ounces)  Argentina (5 million ounces)  Turkey (3. Mexico leads the list of silver producing countries.7 million ounces)  South Africa (3.4 million ounces)  India (2. Clearly.2 million ounces)  Russia (37.4 million ounces)  Indonesia (8.6 million ounces)  United States (40.4 million ounces)  Australia (71.6 million ounces)  Morocco (6. 73 . only 25% of the world’s total production (i.8 million ounces)  Chile (42.8 million ounces)  Poland (43.6 million ounces)  Bolivia (13.9 million ounces)  China (63. As already mentioned. 615 million ounces) comes from the primary silver mines and the rest from other sources like refining of other metals and also from scrap recycling.9 million ounces)  Kazakhstan (20.

2 million ounces of silver was separated from the waste for recycling purposes. this import level fell sharply as a result of the decline in demand due to rise in silver prices and inconsistent monsoon on which the income of the rural sector depends. The countries from which India imports silver and maintain the flow of silver in the market are:      China United Kingdom European Union Australia Dubai Major trading canters of silver       London Zurich New York (COMEX) Chicago (CBOT) Hong Kong Tokyo Commodity Exchange (TOCOM) 74 . Indian silver market However. But. even this sharp decline could not affect India’s reputation of being one of the largest consumer countries of silver in the world.World silver survey done in 1998 depicts that around 152. India stands third after United States and Japan among the leading consumers of silver in the world.

and any other charges and levies Unit of trading 30 Kg Delivery unit 30 kg Quotation/base value Rs per Kg of Silver with 999 fineness Tick size Re. 1 75 .Ahmedabad inclusive of Custom Duty.6 Fig 3. exclusive of local sales tax/VAT.Fig 3.7 NCDEX SILVER FUTURES CONTRACT SPECIFICATIONS Name of Commodity Silver Ticker symbol SILVER Trading System NCDEX Trading System Basis Ex .

Fig 3.8 BASIC PAYOFFS A payoff is likely profit/loss that would accrue to a market participant with change in the price of the underlying asset.com\downloads\refiners_silver. The Asset could be a commodity like gold or silver. List of approved refiners is available at: www.Quality Specification Not less than 999 fineness bearing a serial number and identifying stamp of a refiner approved by the Exchange. or it could be a financial asset like a stock or an index.ncdex.10 per cent at bar level. this is generally depicted in the form of payoff diagrams which show the prices of the underlying asset on the X-axis and the profit/losses on the Y-axis. 76 .pdf Quantity variation +/.

77 .

The trader in the long position is said to “buy” a contract. In case of long position trader earns the profit when there is an increase in the future prices more than the delivery price resulting in the increasing payoffs and incurs loss in the situation of falling future price below the delivery price. 78 .

FUTURE AND SPOT PRICES OF “GOLD” COMMODITY FUTURE CONRACT EXPIRING ON 3RD OCTOBER 2013 DATE 27Aug-13 28Aug-13 29Aug-13 30Aug-13 31Aug-13 2-Sep13 3-Sep13 4-Sep13 5-Sep13 6-Sep13 7-Sep13 9-Sep13 10-Sep- PREV.3 31521 31322 31322 31221 30780 2 4 62. he incurs the loss when the delivery price is less than the future price of the commodity on the expiry date of the contract.The short-side trader “sells” a contract.5 33636 33600 33600 32900 33010 3 7 99.37 33678 33750 33750 33546 33636 2 6 67.5 32250 -760 -3.04 31860 31540 31540 31540 31521 0 4 0 31450 -71 -1.6 4.17 32000 33015 33890 33890 33890 34430 1 9 33. SPOT PRICES PAY OFF % OF CHA IN PRIC OPEN INT. CLOSE PRICE OPEN PRICE HIGH PRICE LOW PRICE CLOSE PRICE TRADE VALUE 31900 32311 32710 32280 33640 9 7 291.03 .48 32700 -940 33640 34500 34501 34500 33678 6 7 207 34130 452 4.0 31860 31949 31949 31733 31860 0 4 0 31880 20 1. The trader in the short position earns profit when the delivery price is more than the future price of the commodity on the expiry date of the future contract and in contrary.6 32636 32600 32600 32600 32210 1 9 32.89 33290 34430 32700 32700 32700 32636 0 9 0 32750 114 -1.6 31900 -310 -2.68 31550 -310 -1.3 33250 -386 -2.0 33010 32525 32525 32301 32980 0 7 0 32860 -120 1.3 79 VOL.5 32210 32170 32170 31670 31860 7 4 222.89 32980 32600 32600 32570 33015 2 8 65.54 30700 -80 -2. 1015 1140 -2.

79 30140 29412 29412 29412 29783 1 2 29.5 29852 29953 29953 29953 29850 0 2 0 29693 -157 0.7 30737 30756 30756 30501 30737 0 1 0 30970 233 3.5 1.1 29783 29946 29674 2876 29750 0 2 0 29978 228 1.98 30000 -220 1.26 29850 29925 30051 29925 30220 2 3 59.97 29878 -859 -0.48 29708 162 -3.3 238.5 30698 31000 31000 31000 30086 1 2 31 30710 624 0.2 29910 29985 29985 29985 29910 0 2 0 30975 1065 2.6 29650 29908 29908 29908 29650 0 1 0 29450 -200 -1.2 30028 30760 30760 30740 30433 0 2 0 30225 -208 2.13 11-Sep13 12-Sep13 13-Sep13 14-Sep13 16-Sep13 17-Sep13 18-Sep13 19-Sep13 20-Sep13 21-Sep13 23-Sep13 24-Sep13 25-Sep13 26-Sep13 27-Sep13 28-Sep13 30-Sep13 1-Oct13 3-Oct13 30780 30600 30600 30600 30698 2 3 61.18 30090 260 0.41 29600 -183 -2.70 29910 30125 30045 29756 29852 0 2 0 29613.59 30086 29840 29840 29801 29546 3 3 89.2 30530 -168 -0.8 PROFIT/LOSS FROM THE CONTRACT 80 -4190 .13 30433 29986 29990 29870 29910 0 2 0 30160 250 -0.2 29546 31279 31330 31218 30140 0 3 0 30241.03 30220 30091 30091 30091 29830 2 1 60.4 30450 30231 30231 30231 29650 0 1 0 30000 350 -0.5 -4.30 29830 29970 29970 29970 30737 1 1 29.65 30737 30865 30959 30853 30450 0 1 0 30200 -250 -2.27 29750 29345 30156 29256 30028 0 2 0 29594 -434 -1.5 101.

4. Therefore the payoff of the contract will be beneficial to short position trader resulting in a loss to the buyer with the amount of Rs..190/- PROFIT 81 4.and ends with the actual market price of Rs.190/.190/- .640/. Following is the table showing calculation of Payoffs 27th August 2013 (Buying) Buyer Seller 33.450/. 29.450/- 3rd October 2013 (Closing Period) LOSS 4.450/- 29.on 3rd October 2013.640/- 29.640/- 33.CALCULATION OF BASIS PAYOFF In case of the above commodity future contract the contract period begins from 27th August 2013 with the initial contract price of Rs.33.

7 59120 -411 59531 59383 59444 59383 59414 60 480 35.5 58295 284 0.446 57996 58740 58570 57256 58025 0 450 0 58150 125 1.190/- FUTURE AND SPOT PRICES OF “SILVER” COMMODITY FUTURE CONTRACT EXPIRING ON 4THMARCH 2013. TRADE VALUE SPOT PRICES PAY OFF 57794 57825 57825 57825 57965 0 480 0 57905 -60 57965 58559 59590 58559 58753 90 420 53.52 58850 -67 1.095 58025 58201 58440 57900 58469 390 480 227.46 58075 -651 0.048 59414 59802 59802 59802 59346 0 480 0 59294 VOL.5 0.08 58100 -369 0. 82 -52 % of Change 0.LOSS FOR THE BUYER OF FUTURES = Rs.5 -265.086 58469 58320 58320 58320 58011 30 510 17.190/GAIN FOR THE SELLER OF FUTURES = Rs.698 58173 58401 58401 58401 58917 30 480 17.5 0.794 58753 57680 58972 57575 58570 0 420 0 58875 305 0.25 58365 -388 0.135 0.65 59148.547 58202 58340 58340 58340 58173 0 480 0 57985 -188 0.731 59473 59650 59650 59650 59758 30 480 17. 4. 4.377 58726 57906 57906 57906 58202 0 480 0 58392.135 0.694 57580 57295 57654 57256 57996 0 450 0 57520 -476 1.82 59280 -193 0.5 190.9 59200 -558 59758 59000 59000 59000 59531 30 480 17.874 58570 57106 57650 56950 57580 90 450 51.51 56700 -880 3.336 58011 58201 58201 58201 58726 30 480 17.492 58917 58873 59101 58873 59473 120 480 70. `DATE 1-Jan13 2-Jan13 3-Jan13 4-Jan13 5-Jan13 7-Jan13 8-Jan13 9-Jan13 10-Jan13 11-Jan13 12-Jan13 14-Jan13 15-Jan13 16-Jan13 17-Jan13 18-Jan13 19-Jan- PREV CLOSE PRICE OPEN PRICE HIGH PRICE LOW PRICE CLOSE PRICE OPEN INT.246 .

518 58360 58285 58285 58285 58046 30 480 17.086 1.572 0.34 57704 -841 1.203 1115 0.5 0.726 52.82 58200 -70 1.551 58046 57812 58267 581897 58204 0 480 0 58115 -89 0.5 0.189 0.13 21-Jan13 22-Jan13 23Jan13 24-Jan13 25-Jan13 28-Jan13 29-Jan13 30-Jan13 31-Jan13 1-Feb13 2-Feb13 4-Feb13 5-Feb13 6-Feb13 7-Feb13 8-Feb13 9-Feb13 11-Feb13 12-Feb13 13-Feb13 14-Feb13 15-Feb13 59346 59536 59538 59536 59387 60 480 35.183 58415 57733 57733 57733 58379 0 480 0 58401.98 57250 0.529 58545 58430 58430 58430 58410 0 480 0 57910 -500 0.04 59100 150 0.47 58099 -261 0.000 0.025 83 59406 19 0.5 0.331 142.07 59336 -264 59600 59722 59809 59679 59921 150 480 59921 59302 59302 59000 58950 240 480 58950 58694 58694 58694 58270 90 480 58270 58360 58360 58360 57755 30 480 57755 57822 57822 57822 57938 30 480 17.35 57500 -438 57938 58415 58415 58415 59135 0 480 0 57942.664 58379 58224 58224 58224 58360 30 480 17.53 58600 747 1.5 0.72 59387 59416 59664 59416 59600 210 480 125.37 57235.520 58204 58130 58157 57980 58255 0 480 0 58120 -135 0.49 58419 373 0.135 57853 57800 57800 57800 58545 30 480 17.51 57500 -255 1.61 59532.5 22.590 56744 56616 56616 56616 56135 30 510 16.523 17.5 59135 57600 57600 57506 57853 60 480 34.118 89.009 58255 58390 57865 57567 57623 0 480 0 58070 447 57623 57650 57650 57650 57595 0 480 0 57157 -438 57595 57680 57680 57680 57430 0 480 0 57575 145 57430 57256 57300 57256 56744 60 510 34.357 58410 58583 58583 58583 58415 0 480 0 58016 -399 0.770 1192.5 -388.5 491.731 .

5 120.29 53492 -570 54062 54100 54100 54100 53350 60 300 32.494 0.5 1.403 52893.47 54050 200 0.21 PROFIT/LOSS FROM THE CONTRACT 84 2.62 56100 -140 56240 56260 56260 55920 55191 90 510 50.743 52845 -1043 0.051 53967 53900 54300 53700 54519 150 180 80.10 0.16-Feb13 18-Feb13 19-Feb13 20-Feb13 21-Feb13 22-Feb13 23-Feb13 25-Feb13 26-Feb13 27-Feb13 28-Feb13 1-Mar13 2-Mar13 4-Mar13 1.5 -756.092 53832 602 53827 127 -4138 Fig 3.297 53850 53780 53350 53195 53230 0 60 0 53230 53879 53178 52980 53650 0 60 0 53650 54789 54100 53789 53888 0 60 0 53888 53650 53700 53650 53700 60 60 32.485 0.79 53890 -629 0.5 0.245 2.858 .365 54519 54200 54200 53991 53850 210 60 113.036 1.532 56135 55970 55970 55970 56083 0 510 0 56400 317 56083 55920 56147 55920 56240 60 540 33.53 56120 929 55191 55256 54671 53590 53733 0 510 0 54860 1127 53733 53500 54069 53500 54062 300 360 161.094 53726 53815 53990 53550 53967 0 300 0 54087.966 53350 53890 53875 53278 53726 0 300 0 54060 334 0.46 54009 659 0.

on 4th March 2013.827/- 4th March 2013 (Closing Period) LOSS 4.138/- . Therefore the payoff of the contract will be beneficial to short position trader resulting in a loss to the buyer with the amount of Rs. 4. 4.CALCULATION OF BASIS PAYOFF In case of the above commodity future contract the contract period begins from 1st January 2013 with the initial contract price of Rs.and ends with the actual market price of Rs.138/- PROFIT LOSS FOR THE BUYER OF FUTURES = Rs.965/.138/.138/GAIN FOR THE SELLER OF FUTURES = Rs. 53.965/- 53.827/.57.965/- 57.138/- 85 4.827/- 53. Following is the table showing calculation of Payoffs 1st January 2013 (Buying) Buyer Seller 57. 4..

GRAPH REPRESENTING GOLD FUTURE AND SPOT PRICES Fig 3.11 GRAPH REPRESENTING SILVER FUTURE AND SPOT PRICES Fig 3.12 86 .

where we observe a increasing trend up to the end of the January month and thereby continuing with the gradual decline till the maturity date. where we observe a steep decrease in the trend from the month of August to mid September and thereby maintaining price stability with minute fluctuations.INTERPRETATION  The graphs above represents the relationship between closing prices and spot prices of commodity future markets. GRAPH REPRESENTING % OF CHANGE IN PRICES OF GOLD: 87 . there has been a overall decline in the price trends.  As we observe the price trends of Silver commodity.  The data belongs to the contract period of the commodity Gold Silver  : from 27th August 2013 to 3rd October 2013 : from 1stJanuary 2013 to 4th March 2013 Considering the above graphs we get to know that spot prices revolve around future prices representing high positive correlation between spot prices and future prices.  As we observe the future price and spot price trends of the commodity “Gold”. there has been a overall decline in the price trends.  The difference between future price and spot price of Gold is high when compare to the Silver future prices and spot prices. where X-axis represent contract period and Y-axis represents prices.

GRAPH REPRESENTING % OF CHANGE IN PRICES OF SILVER:

INTERPRETATION
88

The graphs above represents the price volatility of commodities Gold and

Silver, where X-axis represent contract period and Y-axis represents percentage
change in prices.

The data belongs to the contract period of the commodity

Gold : from 27th August 2013 to 3rd October 2013
Silver : from 1stJanuary 2013 to 4th March 2013

From the above graph we observe a high fluctuating percentage change in gold

prices resulting in more volatile market for gold where the investment in gold prove
to be more risky than the silver.

As we observe the percentage change in prices of silver commodity, the prices

are less volatile than the gold, which proves that investment in silver are less risky
when compared to the Gold.

89

CHAPTER-V

FINDINGS
CONCLUSIONS
SUGGESTIONS

FINDINGS

90

Here daily volumes and trends are considered.e. but at major instances spot prices are at lower level than the future prices. Buy and Sell on same day to make profits. long position trader (Buyer) earns profits where as short position trader (Seller) faces the loss. CONCLUSION 91 .  As the delivery month of future contract is approached.short position traders (Sellers) earn profits whereas long position traders (Buyer) face the loss.  Investments in commodities market is less risky. science the prices of commodities are more stable than that of other instruments of capital market. The investment in this for short period of time and most of the trading is intra-day in nature i..  There exists a high degree of positive correlation between Spot Commodity Market and Commodity Future Market.  Though future price and spot prices are positively co-related.  In case of rising price trends.  In case of decreasing price trends. the future prices converge to the spot prices of the underlying asset. If an amount of small change in the spot gold market prices has the direct impact on the future prices of gold in commodity market.

Cotton. SUGGESTIONS 92 .. Chana etc. contrary to the beliefs of many people has been in existence in India through the ages. unlike in other markets where price manipulations are very much possible. traders and large scale consumers. a shot in the arm. Steel. Commodities market. Wheat.importers. Commodity includes all kinds of goods. Soya beans.  The future contracts available on a wide spectrum of commodities like Gold. Silver. However the recent attempt by the Government to permit Multi-commodity National levels exchanges has indeed given it. Hence to that extent market pricerisk is reduced. Soya oil. crude oil . exporters.  The price movements are more predictable in commodity markets. Sugar. provide excellent opportunitiesfor hedging the risks of the farmers.

understand and be updated about he guidelines and circulars of the exchange and of the Forward markets Commission issued time to time kept on the respective websites. Read the commodity contracts circulars and issued & kept on MCX website and carefully note the contract specifications of the commodity in which u wish to trade. excise duty. Study historical and seasonal price movements of the commodity that you wish to deal in the futures market. 93 . Before entering into buy and sell transactions please be aware of all the factors that go into the mechanism of pricing. as applicable on the underlying commodity of any contrcts offered for trading by MCX. value added tax. Understand the Delivery&settlement procdures given in the Exchange Circular of the commodity kept on the exachange website that you wish to deal in the futures market.stampduty.clearing and settlement Read product and note of the commodity in which you wish to deal to understand the commodity and parameters that impact onthetrading and settlement of the commodity. The contract specifications are subject tochange from time to time.etc. trading.Mandi Cess and Tax..APMC tax.1952dealing with futures trading in commodities and amendments thereof from time to time Understand the provisions and rates relating to the sales tax. Octroi.Familiarize yourself with all the provisions of Eorward Contracts (Regulations) Act. Read.

BIBILIOGRAPHY BIBILIOGRAPHY 94 .

New Delhi. Oxford University Press. Thomas .  John C. Hyderabad. “Financial Derivatives”.Hull(2006).S (2007). 6th Edition.. New York. 1st Edition.V. Ltd. Ltd. David.  Seethapathi. (2002).W (2007). Psanna chandana ‘’derivatrives’’ JOURNALS 95 . New Delhi. 1st Edition.  Kumar. “Derivatives valuation & Risk Management”. “Financial Derivatives”.. PHI Learning Pvt. 1st Edition. ICFAI Press.S. Dubofsky.A& Miller. “Options.k&Subbulakshmi. Futures and Other Derivatives”. PHI Learning Pvt.S.

 “Opportunities in Indian derivatives & Commodities Market” – Indian Journal of Finance.  “The farmers perspective of commodity futures in India – The Road Ahead” – Indian Journal of Finance. April-May(2008).29). No.2. June (2006). 3). No.  “Commodity Markets – All set to take on Equity Markets” – Osmania Journal of Management. September(2008). Volume II. Volume XI. (pp No.(pp No.  “Commodity Boom” – Chartered Financial Analyst. 96 . No. Volume XI. June(2006). (pp No.3).5.1.