summer internship preentation on commoditie futures
TRANSCRIPT
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SUMMER INTERNSHIP PROJECTCOMMODITY FUTURES:AN INVESTORS PERSPECTIVE
Presented by- Under Guidance of Aditya Singh Chandan KumarMBA Finance (3 rd Sem) IIFL, Varanasi
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Company Profile IndiaInfoline founded in 1995 Independent business research and information
provider
Listed on the Bombay Stock Exchange (BSE) and theNational Stock Exchange (NSE). offer a wide range of services and products comprising
broking (retail and institutional equities and
commodities), wealth management, credit and finance,insurance, asset management and investment banking It is registered as a Category I merchant banker and are
a SEBI registered portfolio manager
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Objectives To study the various aspects of commodity
market To understand the stages through which a
commodity deal is done To anticipate the market based on the market
research reports To study the whole process- from application of
d-mat account opening, enclosures required,brokerage charged, allotment of login id and finaltrading commencement
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Introduction
Any product or an article of commerce which is traded on an authorizedcommodity exchange All goods and products of agricultural (including plantation), mineral and
fossil origin allowed for commodity trading recognized by FCRA The national commodity exchanges, recognized by the Central
Government, permits commodities include precious (gold and silver) andnon-ferrous metals, cereals and pulses, ginned and un-ginned cotton,oilseeds, oils and oilcakes, raw jute and jute goods, sugar and jaggery,potatoes and onions, coffee and tea, rubber and spices
Of the country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion),
commodities related (and dependent) industries constitute about 58 percent Currently, the various commodities across the country clock an annual
turnover of Rs 1, 40,000 crore (Rs 1,400 billion)
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Futures Market
An agreement betweentwo parties to buy or sellan asset at a certain timein the future at a certainprice
The main standardizeditems in a futures contractare:
Quantity of the underlying Quality of the underlying
The date and the monthof delivery The units of price
quotation and minimumprice change
Delivery center
FUTURES FORWARD
Trade on an organizedexchange
OTC in nature
Standardized contractterms
Customized contract terms
hence more liquid hence less liquid
Requires marginpayments
No margin payment
Follows daily settlement Settlement happens atend of period
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Continued..
A derivative is a product whose value isderived from the value of one or moreunderlying variables or assets in a contractual
manner Underlying asset can be equity, forex,
commodity or any other asset A Commodity Derivative derives its value
from an underlying asset, which is necessarilya commodity
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Estimation Technique for Future PriceFinancial Instruments Futures: There is no cost of carry, but the holding cost is cost of financing (less) Dividend Returns. Therefore the fair
value of Future contract can be defined as under:F = Se (rt) Where,F = Future PriceS = Spot Pricer = Cost of Financing (using continuous compounded interest rate)
t = Time till expiratione = 2.71828Commodities Futures:
In commodities you have to carry till it is sold as there is physical delivery. Here the seller so insures holdingcost which is equal to cost of finance + Storage cost+ Insurance. Fair value of Future contract here isdefined as under:
F = (S + U)e(rt) Where,F = Future PriceS = Spot PriceU = Present Value of Storager = Cost of Financing (using continuous compounded interest rate)t = Time till expiration,e = 2.71828
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Commodity Trading Cycle
TRADING
[both of the partiesagrees to buy or
sell the underlyingasset]
CLEARING[members are
informed of thedeliverable/receiva
ble positions]
SETTLEMENT
[The sellerintending to makedelivery takes the
commodities to thedesignatedwarehouse]
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Risks
OPERATIONAL
MARKET
LIQUIDITY
AVERAGING
SWITCHING
LOCKING
RiskManagement
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Research Methodology
Research Type : Exploratory
Universe : Varanasi (confined to Jewelers Market)
Sampling Technique : Convenience Sampling
Sample Unit : Jewelers & Prospects
Sample Size : 30
Methods of Data Collection: Primary Data QuestionnaireSecondary Data Internal Sources,Brochures, Websites, Leaflet, Pampslet.
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Analysis
38%
62%
Yes No
Column Chart Showing ThePercentage of Respondents who
have Invested In ComodityFuture
Yes No
70%
30%
Yes No
Column Chart Showing ThePercentage of Respondentswho have Invested Other
Securities
Yes No
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27%
50%
20%
3%
Pie chart showing the amount invested incommodity futures
Rs. 2 lakh
Rs. 2-3 lakh
Rs. 3-5 lakh
Above Rs.5lakh0%
20%
40%
60%
80%
Yes No
P e r c e n t a g e
Particular
Column chart showing the percentage of investors who use fundamental/technicalanalysis when giving an order
Yes No
0%
10%
20%
30%40%
50%
60%
Friends Media Self-Research Others
Column chart showing the means throughwhich the investors got to know about
commodity futures
Friends Media Self-Research Others
0%
10%
20%
30%
40%
50%
60%
70%
Good Reasonable Bad
Column chart showing the extent of returnsderived by the investors from commodity
futures
Good Reasonable Bad
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0%
20%
40%
60%
80%
Yes No
Column chart showing opinion of theinvestor of whether commodity futures is a
good investmentopportunity
Yes No
0%
10%
20%
30%
40%
50%
60%
MARKETLIQUIDITYLOT SIZE
PERCENTAGE
PERCENTAGE
0%
20%
40%
60%
Very High High Reasonable Low
Column chart showing theinvestors perception towards the
facility fee charged by theircompany
Very High High Reasonable Low
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Findings There is a little less awareness of commodity
market to investors. Person between ages of 20-40 years are more
active player in the commodity trading and 10-30% of their income are invested in market There has been seen that most of private sector
employees and business person invests incommodity market
It has been seen that Gold, Silver and Copper aremore dealing commodity
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Recommendations
Since commodity futures are a new concept, more awareness mustbe created by marketing this investment instrument appropriately.
If the minimum investment is reduced, this might induce morepeople to invest in commodity future.
As commodity market are growing so one should trade in exchangetraded market rather than the OTC market As commodity market growing so all groups of people must be
asked to invest in commodity futures. One should take better position with the help of fundamental and
technical analysis It is not a necessity that one must be very educated to invest in
commodity futures. So, it is recommended that those who are notsoundly educated also can invest in commodity futures
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Conclusion Investor becomes more careful in investment with considering the
factor like global economy, availability of commodity etc In the trading system people consider above factor for investment
so we can conclude that investor are more moving towards theexchange traded market
The trading system also includes trading and intermediaryparticipants, who ensure the correct price discovery. Thus, thetrading system is one of the factors, which reduce the risk incommodity futures
It can be concluded that one can use commodity futures for the hedging purposes rather than for the speculative
This can be emphasized by the fact that there has been anincreasing trend in the volume traded in most of the commodities.Thus, commodity futures are a growing market
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References www.crnindia.com www.indiamart.com www.ncdex.com www.fmc.gov.in
COMMODITY EXCHANGE WEBSITES http://www.mcxindia.com http://www.icexindia.com http://www.ncdex.com/ http://www.sebi.gov.in/ http://www.fmc.gov.in/ http://www.nseindia.com/ http://www.bseindia.com/
BOOKSKolb, Robert W, Futures, options and swaps,
by LPE PublicationsThomas, Derivative markets in India 2003,
3rd Edition
http://www.crnindia.com/http://www.indiamart.com/http://www.ncdex.com/http://www.fmc.gov.in/http://www.mcxindia.com/http://www.icexindia.com/http://www.ncdex.com/http://www.sebi.gov.in/http://www.fmc.gov.in/http://www.nseindia.com/http://www.worldenergyoutlook.org/http://www.worldenergyoutlook.org/http://www.nseindia.com/http://www.fmc.gov.in/http://www.sebi.gov.in/http://www.ncdex.com/http://www.icexindia.com/http://www.mcxindia.com/http://www.fmc.gov.in/http://www.ncdex.com/http://www.indiamart.com/http://www.crnindia.com/ -
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THANK YOU