2 marks questions commodity market:

1. Commodity management: Commodity Management is the process of developing a

systematic approach to the entire usage cycle for a group of items. The term is often used
interchangeably with Category Management.
It is generally considered as one aspect of the Procurement Management toolkit, and
frequently used in combination with other tools – such as 'two-by-four-box' analysis,
looking at the strategic positioning of that commodity with respect to an organisation and
its supplier. This may then be further developed with Supplier Relationship Management
(SRM), with designated Buyers managing key suppliers in given commodities.
For more information on this topic, please consult:
Supplier Relationship Management
Procurement
Category management

2. What is the 'Commodity Market'

A commodity market is a physical or virtual marketplace for buying, selling and trading
raw or primary products, and there are currently about 50 major commodity markets
worldwide that facilitate investment trade in approximately 100 primary commodities.

3.Primary commodity:
Material in a raw or unprocessed state, such as an ore fresh fruit, which is extracted or
harvested and requires minimal processing before being used.

4.Hedging
A risk management strategy used in limiting or offsetting probability of loss from
fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a
transfer of risk without buying insurance policies.

Hedging employs various techniques but, basically, involves taking equal and opposite
positions in two different markets (such as cash and futures markets). Hedging is used also
in protecting one's capital against effects of inflation through investing in high-yield
financial instruments (bonds, notes, shares), real estate, or precious metals.

5. What is 'Arbitrage'
Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in
the price. It is a trade that profits by exploiting the price differences of identical or similar
financial instruments on different markets or in different forms. Arbitrage exists as a result
of market inefficiencies.
definition: Arbitrage is the profit making market activity of buying and selling of same
security on different exchanges or between spot prices of a security and its future contract.
Here exchange refers to the stock market where shares are traded, like the NSE and BSE.
Arbitrage is a sophisticated form of non-speculative, risk-free betting because it involves
dealings where returns and prices are definite, fixed, and known. See also speculation.

6. What is a 'Forward Contract'

A forward contract is a customized contract between two parties to buy or sell an asset at
a specified price on a future date. A forward contract can be used for hedging or
speculation, although its non-standardized nature makes it particularly apt for hedging.
Unlike standard futures contracts, a forward contract can be customized to any commodity,
amount and delivery date. A forward contract settlement can occur on a cash or delivery
basis.

7. What is a 'Commodity Futures Contract'

A commodity futures contract is an agreement to buy or sell a predetermined amount of a
commodity at a specific price on a specific date in the future. Buyers use such contracts to
avoid the risks associated with the price fluctuations of a futures' underlying product or
raw material. Sellers use futures contracts to lock in guaranteed prices for their products.

8. Market efficiency :
Measure of the availability (to all participants in a market) of the information that provides
maximum opportunities to buyers and sellers to effect transactions with minimum
transaction costs.

9. What is 'Backwardation'
Backwardation is a theory developed in respect to the price of a futures contract and the
contract's time to expire. As the contract approaches expiration, the futures contract trades
at a higher price compared to when the contract was further away from expiration. This is
said to occur due to the convenience yield being higher than the prevailing risk-free rate.
Backwardation describes a downward sloping forward curve in a commodity market. This
means that as the price of a commodity for future delivery is lower than the spot price --
the price of a commodity today.

10. warehouse receipt: is a document that provides proof of ownership of commodities

(e.g., bars of copper) that are stored in a warehouse, vault, or depository for safekeeping.
Warehouse receipts may be negotiable or non-negotiable. Negotiable warehouse receipts
allow transfer of ownership of that commodity without having to deliver the physical
commodity. See Delivery order.
Receipt of goods or materials left for safekeeping in a warehouse. It is a non-negotiable
instrument if it permits delivery only to a named entity; a negotiable instrument when
bearer or made out to the order of the holder.

11. What is 'Counterparty Risk'

Counterparty risk is the risk to each party of a contract that the counterparty will
not live up to its contractual obligations. Counterparty risk is a risk to both parties and
should be considered when evaluating a contract.
In most financial contracts, counterparty risk is also known as default risk.
Counterparty risk is the risk that the person or institution with whom you have entered a
financial contract -- who is a counterparty to the contract -- will default on the obligation
and fail to fulfill that side of the contractual agreement.
In other words, counterparty risk is a type of credit risk. Counterparty risk is the greatest
in contracts drawn up directly between two parties and least in contracts where an
intermediary acts as counterparty.

12. E auction :
The electronic auction (E-Auction) is an e-business between auctioneers and bidders,
which takes place on an electronic marketplace. It is an electronic commerce which occurs
business to business (B2B), business to consumer (B2C), or consumer-to-consumer (C2C).
The auctioneer offers his goods, commodities or services on an auction side on the internet.
Interested parties can submit their bid for the product to be auctioned in certain specified
periods. The auction is transparent, all interested parties are allowed to participate the
auction in a timely manner.

13. What is a 'Market Maker'

A market maker is a broker-dealer firm that assumes the risk of holding a certain number
of shares of a particular security in order to facilitate the trading of that security. Each
market maker competes for customer order flow by displaying buy and sell quotations for
a guaranteed number of shares, and once an order is received from a buyer, the market
maker immediately sells from its own inventory or seeks an offsetting order. The Nasdaq
is the prime example of an operation of market makers, given that there are more than 500
member firms that act as Nasdaq market makers, keeping the financial markets running
efficiently.
market maker is a person or brokerage house that is always prepared to buy and sell
securities in order to provide liquidity to the markets.

14. What is 'Mark To Market - MTM'

Mark to market (MTM) is a measure of the fair value of accounts that can change over
time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of
an institution's or company's current financial situation.
Mark-to-market (MTM) is an accounting method that records the value of an asset
according to its current market price.
Mark-to-market (MTM or M2M) or fair value accounting refers to accounting for the
"fair value" of an asset or liability based on the current market price, or for similar assets
and liabilities, or based on another objectively assessed "fair" value
Mark-to-market accounting can change values on the balance sheet as market conditions
change. In contrast, historical cost accounting, based on the past transactions, is simpler,
more stable, and easier to perform, but does not represent current market value

15. What is 'Commodity Price Risk'

Commodity price risk is the threat that a change in the price of a production input will
adversely impact a producer who uses that input. Commodity production inputs include
raw materials like cotton, corn, wheat, oil, sugar, soybeans, copper, aluminum and steel.
Factors that can affect commodity prices include political and regulatory changes, seasonal
variations, weather, technology and market conditions. Commodity price risk is often
hedged by major consumers.
Day trading is speculation in securities, specifically buying and selling financial
instruments within the same trading day. Strictly, day trading is trading only within a day,
such that all positions are closed before the market closes for the trading day. Many traders
may not be so strict or may have day trading as one component of an overall strategy.
Traders who participate in day trading are called day traders. Traders who trade in this
capacity with the motive of profit are therefore speculators. The methods of quick trading
contrast with the long-term trades underlying buy and hold and value investing strategies.
16. day trader is a trader who adheres to a trading style called day trading. This involves
buying and subsequently selling financial instruments (e.g. stocks, options, futures,
derivatives, currencies) within the same trading day, such that all positions will usually be
closed before the market close of the trading day. Depending on one's trading strategy, it
may range from several to hundreds of orders a day.

17. What is 'Initial Margin'

Initial margin is the percentage of the purchase price of securities (that can be purchased
on margin) that the investor must pay for with his own cash or marginable securities; it is
also called the initial margin requirement. According to Regulation T of the Federal
Reserve Board, the initial margin is currently 50%, but this level is only a minimum and
some brokerages require you to deposit more than 50%. For futures contracts, initial margin
requirements are set by the exchange. An initial margin is the amount of a margin account
as a percentage of the investment purchased on margin.

18. What is the 'Spot Price'

A spot price is the current price in the marketplace at which a given asset such as a security,
commodity or currency can be bought or sold for immediate delivery. While spot prices
are specific to both time and place, in a global economy the spot price of most securities
or commodities tends to be fairly uniform worldwide. In contrast to spot price, a security,
commodity or currency's futures price is its expected value at a specified future time and
place.

19. Strike price (or exercise price) of an option is the fixed price at which the owner of
the option can buy (in the case of a call), or sell (in the case of a put), the underlying security
or commodity. The strike price may be set by reference to the spot price (market price) of
the underlying security or commodity on the day an option is taken out, or it may be fixed
at a discount or at a premium.
The strike price is a key variable in a derivatives contract between two parties. Where the
contract requires delivery of the underlying instrument, the trade will be at the strike price,
regardless of the market price of the underlying instrument at that time
definition: Strike price is the pre-determined price at which the buyer and seller of an
option agree on a contract or exercise a valid and unexpired option. While exercising a call
option, the option holder buys the asset from the seller, while in the case of a put option,
the option holder sells the asset to the seller.
 The price at which the futures contract underlying a call or put option can be purchased (if
a call) or sold (if a put). Also referred to as exercise price

20. what is 'Convergence'

Convergence is the movement of the price of a futures contract towards the spot price of
the underlying cash commodity as the delivery date approaches
Convergence trade is a trading strategy consisting of two positions: buying one asset
forward—i.e., for delivery in future (going long the asset)—and selling a similar asset
forward (going short the asset) for a higher price, in the expectation that by the time the
assets must be delivered, the prices will have become closer to equal (will have converged),
and thus one profits by the amount of convergence

21.Bucketing
The practice in which a brokerage that agrees to buy or sell securities on behalf of clients
at a given price instead buys at a lower price or sells at a higher price in order to keep the
difference as profit. Bucketing is illegal in the United States because it is a violation of the
brokerage's fiduciary responsibility to act in the best interest of the client (in this case, to
find the best available price). Brokerages that routinely engage in bucketing are known as
bucket shops. The practice is occasionally called bucketeering. See also: Profiteering,
Bucketeer
Definition
The illegal practice by a broker of executing a customer's order for his/her own account
instead of on the market, with the hope of profiting from an offsetting transaction at a future
time.

22. Spot market;

Spot market or cash market is a public financial market in which financial instruments
or commodities are traded for immediate delivery. It contrasts with a futures market, in
which delivery is due at a later date. In a spot market, settlement normally happens in
t+2working days, i.e., delivery of cash and commodity must be done after two working
days of the trade date. A spot market can be through an exchange or over-the-counter
(OTC). Spot markets can operate wherever the infrastructure exists to conduct the
transaction.

Spot Exchanges refer to electronic trading platforms which facilitate purchase and sale of specified
commodities, including agricultural commodities, metals and bullion by providing spot delivery
contracts in these commodity.