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Products such as gold, silver, copper, crude oil, natural gas wheat, and soybeans are generally thought of as “commodities.” These and hundreds of other types of commodities are traded daily around the world. Commodities are traded in the spot market, where a buyer takes immediate (“physical”) delivery of the commodity. It also traded in derivatives markets through such resources as forwards, futures, options, or swaps. These derivatives allow buyers and sellers to set prices for exchanges of commodities at a future date, in the case of forth and futures, or to hedge against and again rate changes and other risks. The bullion market faces increased volatility and regulatory review committee. Although many agricultural businesses have devoted considerable attention to physical risks associated with supply chains and producers, Commodity Tips and risk management have received scant meditation. Where companies have created bullion trading and risk management programs, they have often been connected from physical risk. Now more than ever, agriculture investment needs to develop more structured, holistic views to managing risk and hard cash. Not only can it assist in mitigating existing risks, but it can help businesses prepare for the future, seize evolution occasion and outmaneuver competitors. Many companies are feeling the pinch, squeezed amid an increasingly tight supply and demand equation. There are 5 Preconditions for a Successful Commodity Exchange 1. Clear Objectives - This exchange needs a clear plan with a well-defined scope. The exchange must have a detailed business plan, operational budget and strategies to engage productively with stakeholders. 2. Good Governance –In this exchange must have a well-thought-out governance structure that emphasizes and responds to membership needs while maintaining an effective board and advisory structure that upholds business standards and meets performance targets. 3. Industry / Stakeholder Buy-In - Physical exchange leadership must meet with traders, farmers, banks, processors the Ministry of Finance, Central Bank, Ministry of Agriculture and donors/relief agencies to generate support for the exchange. 4. Enabling Environment / Infrastructure - The host country needs to have legislation in place that consistently addresses agricultural, financial, trade and legal policies. However, provision specific to a commodity exchange is not necessary for it to operate. Rather, policies should permission for a free market – i.e. supply and demand determine prices. 5. Well-Designed Trading and Clearing Systems - The exchange must develop a system that is appropriate to the environment in which it is operating. This can include open outcry (shouting and the use of hand signals to transfer information), electronic or a conjunction of the two. Electronic systems allow for longer trading sessions, greater ductility and more freedom for members. Bullion and financial markets are thus increasingly intertwined sharing a growing number of participants in search of risk management tools and investment opportunities. The specie, efficiency and accessibility of spot markets are strengthened by well-functioning derivative markets, and vice versa. Sufficient and credible information on market fundamentals such as volumes of production and expenditure, network and plumbing capacity etc, as well as the quantity of trading that takes place in the Object is necessary for transparent and orderly price formation both on the spot and derivative bazaar. Derived markets are however not only used by commercial companies for risk management motive, but also by a financial organization as part of their risk allotment strategy. In addition rate of commodity futures often serve as benchmarks for example influencing retail energy and food prices for EU consumers.
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