A project report on commodity futures and awareness level of commodity market at geojit financial service ltd bangalore
Upcoming SlideShare
Loading in...5
×

Like this? Share it with your network

Share

A project report on commodity futures and awareness level of commodity market at geojit financial service ltd bangalore

  • 1,111 views
Uploaded on

A project report on commodity futures and awareness level of commodity market at geojit financial service ltd bangalore

A project report on commodity futures and awareness level of commodity market at geojit financial service ltd bangalore

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
1,111
On Slideshare
1,111
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
71
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 1 Executive Summary:- The function of the Financial Market is to facilitate the transfer of funds from surplus sectors to deficit sector. A derivative is a financial instrument that derives its value from an underlying asset. This underlying asset can be stocks, bonds, currency, commodities, metals etc., there are different types of derivatives like:- Futures Forwards Options and Swaps A futures contract is an agreement between two parties to buy or sell the underlying asset at a future date at today's future price Options are deferred delivery contracts that give the buyers the right, but not the obligation, to buy or sell a specified underlying at a set price on or before a specified date. A forward contract is an agreement between two entities to buy or sell the underlying asset at a future date, at today's pre-agreed price. Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. I have taken the commodity futures, to study and analyze as it is the emerging trend in the market, at Geojit Commodity Ltd. Geojit Commodity Ltd is the Subsidiary of the Geojit Financial Service Ltd., it is serving in all the areas of financial market like Share trading, Security analysis and portfolio management and commodity trading. I conducted the survey in Bangalore City to know about the awareness of the Commodity Market.
  • 2. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 2 Commodity as an asset class possess low correlation with equity and debt markets which makes it attractive as a portfolio diversifer.Also,long term volatility witnessed in commodity markets is lower than that witnessed in equity markets. When I conducted surveys with customers and, according to their view they prefer to invest mostly in commodities like Gold, Silver, Crude oil, etc. Because percentage of return is more of these commodities also risk is attached to it. As well as they prefer the Capital market because of its growth and they are having fare knowledge about that market. Most of the customers are not aware of the commodity market .So fare knowledge about the commodity market and its operation to the public. Objective of the project are:  To understand the commodity market, its working and mechanism and types of commodities traded in India.  To study the future contracts on commodities..  To study the pricing of commodity futures.
  • 3. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 3  To find the awareness level of commodity market in Bangalore city.  To find the potential customers for commodity market.  To know which commodity they prefer to invest in. Findings:  Commodity Futures have a bright future in coming days.  Deciding on the prices depending on the formulas may go wrong. Because it is cost plus carry, but in real sense the prices may even go down than the spot prices.  Price of a commodity is dependent on its demand and supply of that commodity in the market.  As the commodity future market is new and emerging, many investors and farmers are not fully aware of this market. As this market, helps them to trade transparently without middlemen or agents to earn the good profits. Suggestions:  Creating the awareness among the people and farmers about commodity market through:
  • 4. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 4  Making presentations in the villages to the farmers by video and explaining them the uses and benefits of the commodity market  Educate them on how to trade the commodity futures, i.e. getting in to the contract before harvesting only, to get the minimum guarantees.  The Company should inform the benefits of Commodity trading to the present investors who are investing in cash market.  Investor who wants to trade internationally has to understand the import and export duty, customs, octroi, and sales tax etc.  Study the price volatility is must for the trader, i.e. study the fluctuation or variations in the daily prices in the market. This volatility is the indicator of the present trend in that commodity Research Methodology: Title:
  • 5. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 5 “Commodity Futures and Awareness level of Commodity Market” Scope of the Study: The study is limited to only commodity market and it is only at Geojit Financial Services Ltd. Bangalore. My study and analysis mainly based on the deciding on the future price for the products using formula. I did this by selecting the three commodities Gold, Silver and Wheat as example. and study is limited to the Bangalore city only. Sources of Data: The data is collected through both the sources, they are: Primary data: The primary data has been collected from the employees of the Geojit Financial Services Ltd...by applying Random Sampling Method Secondary data: The secondary data has been collected from magazines, newspaper, books & Internet etc. Selection of Sample:
  • 6. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 6  Population: People of Bangalore City.  Sampling Frame: People those who are trading regular basis.  Sampling Size: 100Units.  Sampling Method: Random Sampling. Tools for Analysis  Cost carry Method Considering storage costs Without considering storage costs Graphs and charts Limitations of the Study:.  The study is related to only the Commodity Futures Market.  There is less investor in Commodity Market, so it is not possible to know the investors perception regarding the Commodity Market.  The study is limited to Bangalore City.
  • 7. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 7 COMPANY PROFILE Company Profile
  • 8. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 8 OVERVIEW Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a partnership firm in the year 1987. In 1993, Mr. Ranajit Kanjilal retired from the firm and Geojit became a proprietary concern of Mr. C .J. George. In 1994, it became a Public Limited Company by the name Geojit Securities Ltd. The Kerala State Industrial Development Corporation Ltd. (KSIDC), in 1995, became a co-promoter of Geojit by acquiring 24% stake in the company, the only instance in India of a government entity participating in the equity of a stock broking company. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year 2000. In 2003, the Company was renamed as Geojit Financial Services Ltd. (GFSL). The board of the company consists of professional directors; including a Kerala government nominee with 2/3rd of the board members being Independent Directors. With effect from July 2005, the company is also listed at The National Stock Exchange (NSE). Geojit is a charter member of the Financial Planning Standards Board of India and is one of the largest DP brokers in the country. Company aims to be a niche player in the capital market through partnership philosophy by carefully selecting business associates and other intermediaries in other fields. The capital market scene is facing increasing challenges with the inflow from FII and increased competition from national as well as international players. Introduction of new products like margin funding is threatening to alter the competitive positioning of existing players. In order to effectively compete and continue its growth, Company has promoted a NBFC named Geojit Credits Private Limited and the future business plans of this Company are being worked out.
  • 9. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 9 As a result of the robust and proactive strategies adopted by the management, Company achieved a good performance and the management is confident that the positive trend would continue in the coming years. Delisting Pursuant to the special resolution passed by the members at the 9th Annual General Meeting held on 27th September 2003 the Company has delisted its equity shares from Delhi Stock Exchange during December 2004 in accordance with SEBI (Delisting of Securities) Guidelines 2003. Listing The Equity shares of the company are listed with the Stock Exchange, Mumbai. The Company has made an application to the National Stock Exchange of India for listing and Shares would be listed shortly. Increase in Share Capital During the previous year, the Board of Directors at their Meeting held on 21st December, 2004, allotted 15,50,000 shares against preferential issue for meeting the capital requirements of the Company. In this regard, your Company had obtained the approval of Shareholders at their Extra Ordinary General Meeting held on 7th October 2004 for the issue of the following shares in accordance with the SEBI (Disclosure & Investor Protection) Guidelines, 2000.
  • 10. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 10 Shareholding Pattern for the quarter ended 31st Mar 2006 Category No. of shares held Percentage of shareholding A. Promoter's Holding 01. Promoters a. Indian Promoters b. Foreign Promoters 77,67,408 - 51.04 02. Persons acting in concert NIL NIL Sub-Total 77,67,408 51.04 B. Non-Promoters Holding 03. Institutional Investors a. Mutual Funds & UTI b. Banking, Financial Institutions/ Insurance companies (Central/State Gov. Institutions/Non-Government Institutions) c. FIIs - 1,80,300 NIL 6,29,824 - 1.18 NIL 4.14 Sub-Total 8,10,124 5.32 04. Others a. Private Corporate Bodies b Indian Public c NRIs/OCBs d. Any Other (i) Directors/Relatives /Associates (Independent and are not in control of the Company) 9,70,040 30,34,999 6,06,029 20,30,000 6.38 19.94 3.98 13.34 Sub-Total 66,41,068 43.64 Grand Total 1,52,18,600 100.00
  • 11. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 11 Overseas Joint Ventures Barjeel Geojit Securities, LLC, Dubai, is a joint venture of Geojit with Al Saud Group belonging to Sultan bin Saud Al Qassemi having diversified interests in the area of equity markets, real estates and trading. Barjeel Geojit is a financial intermediary and the first licensed brokerage company in UAE. It has facilities for off-line and on-line trading in Indian capital market and also in US, European and Far-Eastern capital markets. Doha Bank-Geojit in Qatar: Geojit has a tie up with Doha Bank in Qatar, which offers capital market services from the India Desk.
  • 12. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 12 Milestones The company crossed the following milestones to reach its present position as a leading retail broking house in India. 1986 Geojit becomes a member of the Cochin Stock Exchange. 1994 The Kerala State Industrial Development Corporation (KSIDC), an arm of the Government of Kerala, becomes a co-promoter of the company by acquiring 24% equity stake in Geojit Financial Services Ltd., based on the evaluation report of Ernst & Young. This is the only venture in India where a state owned development institution is participating in the equity of a stock broking company. Geojit becomes a corporate broking house. 1995 Geojit comes out with a small Initial Public Offer (IPO) of Rs.9.5 million, which was oversubscribed by 15 times. Geojit's issued and subsribed equity capital increased to Rs.30 million and KSIDC's equity stake comes down to 17%. Geojit becomes a member of the National Stock Exchange (NSE) and installs its first trading terminal in Cochin, Kerala.
  • 13. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 13 1996 The company launches Portfolio Management Services after obtaining required registration (Portfolio Management) from Securities Exchange Board of India (SEBI). 1997 Geojit becomes a Depository Participant under National Securities Depository Limited (NSDL) and begins providing Depository Services through its branches. 1999 Geojit becomes a member of The Stock Exchange, Mumbai (BSE) and activates Bombay Online Terminals (BOLT) in different branches. The customer base of Geojit crosses the 50,000 mark. 2000 Geojit becomes the first broking firm in the country to offer online trading facility. The then SEBI Chairman, Mr. D.R.Mehta inaugurates the facility on 1st February 2000. Commences Derivative Trading after obtaining registration as a Clearing and Trading Member in NSE. Establishes the first Bank Gateway in the country for Internet Trading. 2001 Geojit's customer base crosses 100,000. Becomes India's first DP to launch depository transactions through Internet. Establishes Joint Ventures in the UAE for serving NRI clients. The company issues bonus shares in the ratio of 1:1. 2002 Geojit ties up with MetLife for the marketing and distribution of insurance products across the country. The company becomes the first online brokerage house to launch integrated internet trading system for both cash and derivatives segments.
  • 14. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 14 Sheikh Sultan Bin Saud Al Oassemi, a member of the ruling family of Sharjah, UAE, joins the Board of Directors of Geojit. 2003 Geojit Commodities Limited, a wholly owned subsidiary of Geojit, becomes member of National Multi-Commodity Exchange of India Ltd., National Commodity & Derivatives Exchange Ltd., Multi Commodity Exchange and launches Commodity Futures Trading in rubber, pepper, gold, wheat and rice. Geojit Commodities Limited launches Online Futures Trading in multiple commodities namely, agri-commodities, precious metals like gold and silver, other metals like steel, aluminum, etc. and energy futures namely, crude oil and furnace oil. Geojit raises more than Rs.100 million through issue of preferential shares. 2005 Barjeel Geojit Securities LLC becomes a member of Dubai Gold Commodity Exchange. Customer base of Geojit crosses 250,000. Geojit's reach spreads through a network of more than 300 branches. The company issues bonus shares in the ratio of 1:1. Geojit Credits, a subsidiary of Geojit Financial Services Ltd. registers with Reserve Bank of India as a Non-Banking Financial Company (NBFC). The company gets listed on National Stock Exchange of India Limited. The company implements Employees Stock Option Scheme. The company opens a first of its kind - all women's branch in Cochin. 2006  Geojit relaunches Internet trading on Reuters TIB Mercury Platform.
  • 15. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 15 Board of directors Mr. A. P. Kurian Non - Executive & Independent Chairman Mr. C. J. George Managing Director & Chief Promoter Mr. Jiji Thomson Non - Executive & Independent Director Sheikh Sultan Bin Saud Al Qassemi Non - Executive & Independent Director Mr. P. C. Cyriac Non - Executive & Independent Director Mr. Mahesh Vyas Non - Executive & Independent Director Management Mr. C. J. George Managing Director Mr. Punnose George Director Mr. Satish Menon Chief Operating Officer Mr. Binoy .V.Samuel Chief Financial Officer Mr. A. Balakrishnan Chief Technology Officer Mrs. Jaya Jacob Alexander Chief, Human Resources Mr. K. Venkitesh Head - Channel Sales and Distribution Ms. Farzana Khan Head-Online Products, Services and Operations
  • 16. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 16 Mr. Rakesh Jhunjhunwala Non - Executive Director Mr. Ramanathan Bupathy Non - Executive & Independent Director Mr. Punnoose George Non - Executive Director Vision “We will continually strive to raise our products and service standards by intelligent application of technology and processes.” Values and Beliefs  We understand and respect customer needs to consistently deliver total quality solutions through constant skills up gradation.  We believe that our company culture helps to attract and retain best talent.  We uphold uncompromising ethical standards and strive to maintain a distinctive identity in public mind shore through innovation and quality  We are committed to achieve profitable progress consistently.  We freely share our investment experience across all ages and strata of society to encourage wise investment for a better future.
  • 17. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 17 PRODUCTS AND SERVICES: 1. Equity 2. Depository 3. Portfolio management services 4. Distribution 5. Futures and Options 6. Commodity 7. Services and distribution 8. Research
  • 18. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 18 THEORETICAL FRAME WORK
  • 19. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 19 An Overview of the Capital Market INTRODUCTION The deregulation and liberalization of the industry in India has been accompanied by change in financial sector. It is widely acknowledged that economic development of a country is directly related to the level of its industrial growth. The process of industrial growth essentially requires the development of capital market, which provides long-term finance to entrepreneurs. The capital market aims at mobilization & efficient allocation of resources to the desired investment outlets & thus, plays a vital role in the development of the national economy. The Indian capital market has been experiencing a process of structural transformation since the early eighties signifying the widening & deepening of the market by showing notable increases both in the number of participants as well as instruments. DEFINITION & MEANING OF CAPITAL MARKET The dictionary of commerce defines capital market as a market for medium and long-term finance. Capital market is one of the sources for raising long-term finance by the corporate. Capital market is the medium through which the companies and investors interact. The companies will enter the capital market with shares and/or debenture issues, which are subscribed by the investors. The investors will evaluate the company‟s
  • 20. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 20 offerings and based on the credentials of the offer take decisions regarding investment. The primary purpose of capital market is to direct the flow of savings into long term investments. FEATURES OF CAPITAL MARKET The following are the main features of the capital market: 1 It is a market for long-term funds exceeding a period of one year. 2 Capital market supplies funds for financing the fixed capital requirements of trade, commerce as well as Govt. 3 The transaction in capital market involves various types of instruments like shares, debentures etc. 4 It is open for both institutions and individuals. 5 Capital market instruments generally have Secondary market. TYPES OF CAPITAL MARKET On the basis of the status of the market, the capital markets in India is classified as
  • 21. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 21 a) Organized capital market and b) Unorganized capital market  ORGANIZED CAPITAL MARKET The constituents of the organized capital market are the Reserve Bank of India financial institutions like IFCI, LIC, IDBI, UTI commercial banks, stock markets etc. In the organized capital market the demand for capital comes from corporate enterprises and government and semi-government institutions and supply comes from household savings, institutions investors like banks investments trusts, insurance companies, finance corporations, governments and international financing agencies.  UNORGANIZED CAPITAL MARKET Unorganized capital market consists of indigenous bankers, money lenders, chit funds, traders etc. A large part of the demand for funds in the unorganized capital market is for consumption purposes. In fact many purposes, for which funds are very difficult to get from the organized market, are financed by the unorganized sector. Unorganized capital market in India is characterized by the existence of multiplicity of interest rates, exorbitant rates of interest and lack of uniformity in their business dealings.
  • 22. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 22 On the basis of stage of development, capital market is classified into two types, viz., i) Primary capital market ii) Secondary capital market  PRIMARY CAPITAL MARKET OR NEW ISSUE MARKET Primary capital market is market for new issues, where long term funds are raised by industrial, commercial enterprises, state government & central government from investors through the issue of shares, debentures & bonds.  SECONDARY CAPITAL MARKET OR STOCK EXCHANGE MARKET Secondary market is markets for secondary sale of securities which have already passed through the new issue market are traded in this market. An active secondary market actually promotes the growth of the primary market & capital formation because investors in the primary market are assured of a continuous market & they can liquidate their investments.
  • 23. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 23 Derivatives Derivatives defined A derivative is a product whose value is derived from the value of one or more underlying variables or assets in a contractual manner. The underlying asset can be equity, forex, commodity or any other asset. Products, participants and functions Derivative contracts are of different types. The most common ones are forwards, futures, options and swaps. Participants who trade in the derivatives market can be classified under the following three broad categories hedgers, speculators, and arbitragers. 1. Hedgers: Hedgers face risk associated with the price of an asset. They use the futures or options markets to reduce or eliminate this risk. 2. Speculators: Speculators are participants who wish to bet on future movements in the price of an asset. Futures and options contracts can give them leverage; that is, by
  • 24. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 24 putting in small amounts of money upfront, they can take large positions on the market. As a result of this leveraged speculative position, they increase the potential for large gains as well as large losses. 3. Arbitragers: Arbitragers work at making profits by taking advantage of discrepancy between prices of the same product across different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they would take offsetting positions in the two markets to lock in the profit. Some commonly used derivatives Some of the more popularly used derivative contracts. Forwards: A forward contract is an agreement between two entities to buy or sell the underlying asset at a future date, at today's pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell the underlying asset at a future date at today's future price. Futures contracts differ from forward contracts in the sense that they are standardized and exchange traded. Options: There are two types of options - calls and puts.  Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date.  Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.
  • 25. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 25  Warrants: Options generally have lives of up to one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer dated options are called warrants and are generally traded over-the-counter.  Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a weighted average of a basket of assets. Equity index options are a form of basket options.  Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are: o Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency. o Currency swaps: These entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction.  Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap.
  • 26. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 26 Futures vs. Forwards A futures contract is very similar to a forward contract, which is also a contract to trade on a future date. The main differences are, that:  futures are always traded on an exchange, whereas forwards always trade over- the-counter  futures are highly standardized, whereas each forward is unique  the price at which the contract is finally settled is different: o futures are settled at the settlement price fixed on the last trading date of the contract (i.e. at the end) o forwards are settled at the forward price agreed on the trade date (i.e. at the start)  the credit risk of futures is much lower than that of forwards: o The profit or loss on a futures position is exchanged in cash every day. After this the credit exposure is again zero.
  • 27. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 27 o the profit or loss on a forward contract is only realized at the time of settlement, so the credit exposure can keep increasing  In case of physical delivery, the forward contract specifies whom to make the delivery to. The counter party on a futures contract is chosen randomly by the exchange. Evolution of the commodity market in India Bombay Cotton Trade Association Ltd., set up in 1875, was the first organised futures market. Bombay Cotton Exchange Ltd. was established in 1893 following the widespread discontent amongst leading cotton mill owners and merchants over functioning of Bombay Cotton Trade Association. The Futures trading in oilseeds started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried on futures trading in groundnut, castor seed and cotton. Futures trading in wheat were existent at several places in Punjab and Uttar Pradesh. But the most notable futures exchange for wheat was Chamber Of Commerce at Hapur set up in 1913. Futures trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was established in 1919 for futures trading in rawjute and jute goods. But organised futures trading in raw jute began only in 1927 with the establishment of East Indian Jute Association Ltd. These two associations amalgamated in 1945 to form the East India Jute & Hessian Ltd. to conduct organised trading in both Raw Jute and Jute goods. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC) was established in
  • 28. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 28 1953 under the Ministry of Consumer Affairs and Public Distribution. In due course, several other exchanges were created in the country to trade in diverse commodities. The Kabra committee report After the introduction of economic reforms since June 1991 and the consequent gradual trade and industry liberalization in both the domestic and external sectors, the Government of India appointed in June 1993 a committee on Forward Markets under chairmanship of Prof. K.N.Kabra. The committee was setup with the following objectives: 1. To assess (a) The working of the commodity exchanges and their trading practices in India and to make suitable recommendations with a view to making them compatible with those of other countries (b) The role of the Forward Markets Commission and to make suitable recommendations with a view to making it compatible with similar regulatory agencies in other countries so as to see how effectively these agencies can cope up with the reality of the fast changing economic scenario.
  • 29. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 29 2. To review the role that forward trading has played in the Indian commodity markets during the last 10 years. 3. To examine the extent to which forward trading has special role to play in promoting exports. 4. To suggest amendments to the Forward Contracts (Regulation) Act, in the light of the recommendations, particularly with a view to effective enforcement of the Act to check illegal forward trading when such trading is prohibited under the Act. 5. To suggest measures to ensure that forward trading in the commodities in which it is allowed to be operative remains constructive and helps in maintaining prices within reasonable limits. 6. To assess the role that forward trading can play in marketing/ distribution system in the commodities in which forward trading is possible, particularly in commodities in which resumption of forward trading is generally demanded. The committee submitted its report in Sept 1994. The recommendations of the committee were as follows:  The Forward Markets Commission (FMC) and the Forward Contracts (Regulation) Act, 1952, would need to be strengthened.  Due to the inadequate infrastructural facilities such as space and telecommunication facilities the commodities exchanges were not able to function effectively. Enlisting more members, ensuring capital adequacy norms and encouraging computerization would enable these exchanges to place themselves on a better footing.  In-built devices in commodity exchanges such as the vigilance committee and the panels of surveyors and arbitrators be strengthened further.  The FMC, which regulates forward/ futures trading in the country, should continue to act a watchdog and continue to monitor the activities and operations of the commodity exchanges. Amendments to the rules, regulations and bylaws of the commodity exchanges should require the approval of the FMC only.
  • 30. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 30  In the context of globalization, commodity markets in India could not function effectively in an isolated manner. Therefore, some of the commodity exchanges, particularly the ones dealing in pepper and castor seed, are upgraded to the level of international futures markets.  The majority of the committee recommended that futures trading be introduced in the following commodities: 1. Basmati rice 2. Cotton 3. Raw jute and jute goods 4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed, safflower seed, copra and soybean, and oils and oilcakes of all of them. 5. Rice bran oil 6. Castor oil and its oilcake 7. Linseed 8. Silver 9. Onions
  • 31. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 31 The liberalized policy being followed by the government of India and the gradual withdrawal of the procurement and distribution channel necessitated setting in place a market mechanism to perform the economic functions of price discovery and risk management. The national agriculture policy announced in July 2000 and the announcements in the budget speech for 2002ñ2003 were indicative of the governments resolve to put in place a mechanism of futures trade/market. As a follow up, the government issued notifications on 1.4.2003 permitting futures trading in the commodities, with the issue of these notifications futures trading is not prohibited in any commodity. Options trading in commodity are, however presently prohibited. Commodities Traded In India Commodities Bullion Gold, Gold HNI, Gold M, I-Gold, Silver, Silver HNI, Silver M Oil and Oil Seeds Castor Oil, Castor Seeds, Cottonseed, Crude Palm Oil, Groundnut Oil, Kapasia Khalli (Cottonseed Oilcake), Mustard /Rapeseed Oil, Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Sesame Seed, Soymeal, Soy Seeds Spices Cardamom, Jeera, Pepper, Red Chilli Metals Aluminium, Copper, Nickel, Sponge Iron, Steel Flat, Steel Long (Bhavnagar), Steel Long (Gobindgarh), Tin, Zinc
  • 32. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 32 Fibre Cotton Long Staple ,Cotton Medium Staple,Cotton Short Staple, Kapas Pulses Chana, Masur, Tur, Urad, Yellow Peas, Cereal Basmati Rice, Maize, Rice, Sarbati Rice, Wheat Energy Brent Crude Oil, Crude Oil,Furnace Oil Plantation Cashew Kernel, Rubber Petro-Chemical High Density Polyethylene (HDPE), Polypropylene (PP), PVC Others Guar Seed, Guargum, Gurchaku, Mentha Oil, Potato, Sugar M-30, Sugar S-30, COMMODITY FUTURES Commodity futures are the part of the derivatives. India has a long history of commodity futures trading, extending over 125 years. As the country embarked on economic liberalization policies and signed the GATT agreement in the early nineties, the government realized the need for futures trading to strengthen the competitiveness of Indian agriculture and the commodity trade and industry. Statutory framework for regulating commodity futures exists in India 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, 1952 (FCRA or the Act), and the Rules framed there under. The nodal
  • 33. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 33 agency for such regulation is the Forward Markets Commission (FMC), situated at Mumbai, which functions under the aegis of the Ministry of Consumer Affairs, Food & Public Distribution of the Central Government. "Commodity" Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims, money and securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all permissible commodities which include precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and unginned cotton; oilseeds, oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and onions; coffee and tea; rubber and spices, etc. "Commodity Exchange" A commodity exchange is an association, or a company or any other body corporate organizing futures trading in commodities. Meaning of "Futures Contract" A futures contract is an agreement between two parties to buy or sell a specified quantity and quality of asset at a certain time in future at a certain price agreed at the time of entering into the contract on the futures exchange. A futures contract is a type of "forward contract". FCRA defines forward contract as "a contract for the delivery of goods and which not a ready delivery contract is". Under
  • 34. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 34 the Act, a ready delivery contract is one, which provides for the delivery of goods and the payment of price there for, either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the Central Government. A ready delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. In market parlance, the ready delivery contracts are commonly known as "spot" or "cash" contracts. Salient features of a "Commodity Futures Contract”  A commodity futures contract is a tradable standardized contract, the terms of which are set in advance by the commodity exchange organizing trading in it. The futures contract is for a specified variety of a commodity, known as the "basis".  The quality parameters of the "basis" and the permissible tender able varieties; the delivery months and schedules; the places of delivery; the "on" and "off" allowances for the quality differences and the transport costs; the tradable lots.
  • 35. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 35  The penalties for no issuance or non-acceptance of deliveries, etc., are all predetermined by the rules and regulations of the commodity exchange.  Consequently, the parties to the contract are required to negotiate only the quantity to be bought and sold, and the price.  The two major economic functions of a commodity futures market are price risk management and price discovery. Objectives of commodity futures are as follows.  Hedging - price risk management by risk mitigation  Speculation - take advantage of favorable price movements  Leverage - pay low margin to enjoy large exposure  Liquidity - ease of entry and exit of market
  • 36. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 36  Price discovery - for making farming and business decisions  Price stabilization along with balancing demand and supply position  Facilitates integrated price structure  Flexibility, certainty and transparency in purchasing commodities facilitate bank Financing.  Facilitates 'informed' lending to the banks. Benefits of Commodity Future Market It benefits to Farmers  Efficient Price Discovery/Forecast made by the exchange will enable farmers decide cropping pattern and investment on inputs.  Price Stability resulting from equilibrium in supply and demand for a commodity would be possible through exchanges.  Get an extensive market opened for them.
  • 37. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 37  Get opportunity to trade, knowing the national and international trends and standards.  Can sell the commodity to the customer without any agents.  Can decide the market even before harvest.  Get an opportunity to gain profit by spending only a small percentage of the actual commodity price.  There is an opportunity to keep the commodity in the warehouse and use the warehouse receipt to deal with financial needs, as it is an endorsable document. Can avoid deliberate decrease in price in the name of quality.  Farmers can trade by asking the help of the experts in trading organizations even if they are computer illiterate. Traders  Can trade by spending only the margin amount.  Can sell the commodities that he buys from the ready market and can rescue himself from the loss happening from price fall.  For those who have kept their commodity in the Central Warehouse, loans are available on the basis of the stock. The benefit is that you can keep the commodity somewhere without blocking the working capital in the stock. Consumer, Industrialist & Exporters  Can be sure that the commodity is available when they require it.  Can calculate the price since it is predetermined and can arrange everything according to that.  Can buy goods without agents.  Can buy them even while sitting in their office.  Can be assured the quality of the good.
  • 38. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 38  Commodities can be purchased with only margin amount instead of giving the whole price. Commodity futures trading cycle NCDEX trades commodity futures contracts having one-month, two-month and three-month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January expiration contract would expire on the 20th of January and a February expiry contract would cease trading on the 20th of 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. Figure shows the contract cycle for futures contracts on NCDEX. Benefits of trading in commodity futures Futures‟ trading in commodities results in transparent and fair price discovery on account of large-scale participation and reflects views and expectations of wider section of people related to those commodities. Producers, traders and processors, exporters/importers get an online platform through different exchanges for price risk management. It provides a platform for producers to hedge their positions according
  • 39. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 39 to their view of the prices. The brokerage is expected to be 0.25% of the transaction value. Indian Commodity Futures Market Introduction: Global commodity market volumes far exceed that of markets. In India too, this market is expected to generate volumes exceeding today‟s equity and derivative volumes. It is being estimated that international trading in commodity futures market is expected to be around five to ten times of physical commodity markets in the next few years. In India, one can expect commodity futures market to be at least five times (at around Rs. 55.000 billion) that of the physical commodity markets (at around Rs 11,000 billion), at least over the next five years. Retail, corporate or institutional investors can now manage their commodity price-risk through participation in this market. Regulatory Frame work: Commodity Futures Trading functions under three tier regulatory framework. 1. Commodity Exchanges: 2. Forward Markets Commission (FMC) 3. Department of Consumer Affairs, Government of India Commodity Exchanges: The commodity Exchange is responsible for the orderly conducting of trade as per the rules and bylaws of FMC. Forward Markets Commission (FMC):
  • 40. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 40 The market regulator is responsible for recommending approvals of exchanges, approves bylaws of exchanges and engages in surveillance for orderly conduction of Future Trading. Department of Consumer Affairs, Government of India: The Ministry of Consumer Affairs, Food and Public Distribution approves the Exchanges, approves a Commodity for Futures Trading and formulates policies and rules. The National level multi-commodity exchanges are: 1. National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE) The First De-Merged Electronic multi commodity exchange of India Granted the National status on a permanent basis by the government of India and operational since 26th November 2002.This is presently working on-line and trading in many active commodities like castor seed/oil, rapeseed and mustard seed/oil, aluminum, soybean/oil, pepper, gold, silver etc. www.nmce.com. 2. National Board of Trade, Indore (N-BOT)--www.nbotind.org. This is also presently working but not completely on-line, screen-based. In this exchange maximum trades are carried out in soy oil. It is incorporated on July 30, 1999 to offer integrated, state-of-the-art commodity futures exchange 3. National Commodity and Derivative Exchange, Mumbai (NCDEX)-- The exchange is being promoted by ICICI Bank, National Stock Exchange (NSE), Life Insurance Corporation and NABARD. It is more or less on the lines of the NSE of the capital market. NCDEX is a public limited company incorporated on April 23,
  • 41. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 41 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has commenced its operations on December 15, 2003. www.ncdex.com. 4. Multi Commodity Exchange of India Ltd, Mumbai(MCX) www.mcxindia.com The exchange is promoted mainly by professionals and supported by Financial Technology (FT). The exchange has started operations from November 10 2003 and has offered gold, silver and castor seed in the first phase of trading facility. The key share holders are State Bank of India (India‟s largest commercial bank) & associates, Fidelity International, National Stock Exchange of India Ltd. (NSE), National Bank for Agriculture and Rural Development (NABARD), HDFC Bank, SBI Life Insurance Co. Ltd., Union Bank of India, Canara Bank, Bank of India, Bank of Baroda and Corporation Bank. The general risks associated with commodity futures The different types of risks associated with commodity futures are as follows: 1. Credit risks
  • 42. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 42 These are the usual risks associated with counter party default and which must be assessed as part of any financial transaction. 2. Market risks These are associated with all market variables that may affect the value of the contract, for e.g., a change in the price of the underlying instrument 3. Operational risks These are the risks associated with the general course of business operations and include: a. Settlements risks, b. Legal risks, and c. Deficiencies in information, monitoring and control systems, which result in fraud, human error, system failures, management failures etc. Settlement risk arises as a result of the timing differences between when an institution either pays out funds or deliverable assets before receiving a assets or payments from a counter party. Legal risk arises when a contract is not legally enforceable, reason being  Inadequate documentation  The counter party lacks the required authority to enter into the transaction  The underlying transaction is not permissible  Bankruptcy or insolvency of the counter party changes the contract conditions 4. Strategic risks These risks arise from activities such as: 1. Entrepreneurial behavior of traders in financial institutions 2. Misreading client requests
  • 43. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 43 3. Costs getting out of control 4. Trading with inappropriate counter parties. 5. Environmental Risk This risk mainly on the agricultural commodities, which are dependent on the climatic conditions, Unfavorable climatic conditions like flood etc., leads to loss of the production. 6. Political Risk: Due to the combination of government actions, ineffective legal systems, war and revolution affect the prices of the commodities. Pricing commodity futures
  • 44. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 44 Commodity futures began trading on the NCDEX from the 14th December 2003. The market is still in its nascent phase; however the volumes and open interest on the various contracts trading in this market have been steadily growing. The process of arriving at a figure at which a person buys and another person sells a futures contract for a specific expiration date is called price discovery. In an active futures market, the process of price discovery continues from the market's opening until its close. The prices are freely and competitively derived. Future prices are therefore considered to be superior to the administered prices or the prices that are determined privately. Further, 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 an active futures markets the free flow of information is vital. Futures exchanges act as a focal point for the collection and dissemination of statistics on supplies, transportation, storage, purchases, exports, imports, currency values, interest rates and other pertinent information. Any significant change in this data is immediately reflected in the trading pits as traders digest the new information and adjust their bids and offers accordingly. As a result of this free flow of information, the market determines the best estimate of today and tomorrow's prices and it is considered to be the accurate reflection of the supply and demand for the underlying commodity. Price discovery facilitates this free flow of information, which is vital to the effective functioning of futures market. In this chapter 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. We
  • 45. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 45 study the cost-of-carry model to understand the dynamics of pricing that constitute the estimation of fair value of futures. Investment assets versus consumption assets When studying futures contracts, it is essential to distinguish between investment assets and consumption assets. An investment asset is an asset that is held for investment purposes by most investors. Stocks and bonds are examples of investment assets. Gold and silver are also examples of investment assets. Note however that investment assets do not always have to be held exclusively for investment. Silver, for example, has a number of industrial uses. However, to classify as investment assets, these assets do have to satisfy the requirement that they are held by a large number of investors solely for investment. A consumption asset is an asset that is held primarily for consumption. It is not usually held for investment. Examples of consumption assets are commodities such as copper, oil, and pork bellies. As we will learn, we can use arbitrage arguments to determine the futures prices of an investment asset from its spot price and other observable market variables. For pricing consumption assets, we need to review the arbitrage arguments a little differently. To begin with, we look at the cost-of-carry model and try to understand the pricing of futures contracts on investment assets. The cost of carry model
  • 46. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 46 We use arbitrage arguments to arrive at the fair value of futures. For pricing purposes, we treat the forward and the futures market as one and the same. A futures contract is nothing but a forward contract that is exchange traded and that is settled at the end of each 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, or buying it in the forward market. If he buys it in the spot market today, it involves opportunity costs. 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, he does not incur an initial outlay. 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. This forms the basis for the cost-of-carry model where the price of the futures contract is defined as: Where: F Futures price S Spot price C Holding costs or carry-costs The fair value of a futures contract can also be expressed as: Where: r Percent cost of Financing T Time till expiration F = S + C
  • 47. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 47 Whenever the futures price moves away from the fair value, there would be opportunities for arbitrage. If F< Or F> , arbitrage would exist. We know what are the spot and futures prices, but what are the components of holding costs? The components of holding cost vary with contracts on different assets. At times the holding cost may even be negative. In the case of commodity futures, the holding cost is the cost of financing plus cost of storage and insurance purchased. In the case of equity futures, the holding cost is the cost of financing minus the dividends returns. Equation cost of carry uses the concept of discrete compounding, where interest rates are compounded at discrete intervals, for example, annually or semiannually. Pricing of options and other complex derivative securities requires the use of continuously compounded interest rates. Most books on derivatives use continuous compounding for pricing futures too. When we use continuous compounding, equation cost of carry is expressed as: Where: r Cost of financing (using continuously compounded interest rate) T Time till expiration e 2.71828 So far we were talking about pricing futures in general. To understand the pricing of commodity futures, let us start with the simplest derivative contract of a forward contract. We use examples of forward contracts to explain pricing concepts because forward contracts are easier to understand. However, the logic for pricing a futures contract is exactly the same as the logic for pricing a forward contract. We begin with a forward contract on an asset that provides the holder with no income and has no storage or other costs. Then we introduce real world factors as they apply to investment commodities and later to consumption commodities.
  • 48. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 48 HEDGING: Hedging is a mechanism to reduce price risk inherent in open positions. Derivatives are widely used hedging. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk. Hedging does not mean maximization of return. It only means reduction in variation of return. It is quite possible that the return is higher in the absence of the hedge, but so also is the possibility of much lower return. Basic principle of hedging: When an individual or a company decides to use the futures markets to hedge a risk, the objective is to take a position that neutralizes the risk as much as possible. Kinds of Hedging There are basically two kinds of hedges that can be taken.  Short Hedge  Long Hedge
  • 49. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 49 Short Hedge A short hedge is a hedge that requires a short position in futures contracts. A short hedge is appropriate when the hedger already owns the asset, or is likely to own the asset and expects to sell it at some time in the future. For example: A short hedge could be used by a cotton farmer who expects the cotton crop to be ready for sale in the next two months. Long Hedge Hedges that involve taking a long position in a futures contract are known as long hedges. A long hedge is appropriate when a company knows it will have to purchase a certain asset in the future and wants to lock in a price now. For Example: Suppose that it is now January 15. A firm involved in industrial fabrication knows that it will require 300 kgs of silver on April 15 to meet a certain contract. The spot price of silver is Rs.1680.
  • 50. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 50 Advantages of hedging Besides the basic advantage of risk management, hedging also has other advantages:  Hedging stretches the marketing period. For example, a livestock feeder does not have to wait until his cattle are ready to market before he can sell them. The futures market permits him to sell futures contracts to establish the approximate sale price at any time between the time he buys his calves for feeding and the time the fed cattle are ready to market, some four to six months later. He can take advantage of good prices even though the cattle are not ready for market.  Hedging protects inventory values. For example, a merchandiser with a large, unsold inventory can sell futures contracts that will protect the value of the inventory, even if the price of the commodity drops  Hedging permits forward pricing of products. For example, a jewelry manufacturer can determine the cost for gold, silver or platinum by buying a futures contract, translate that to a price for the finished products, and make forward sales to stores at firm prices. Having made the forward sales, the manufacturer can use his capital to acquire only as much gold, silver, or platinum as may be needed to make the products that will fill its orders
  • 51. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 51 Limitations of Hedging  The asset whose price is to be hedged may not be exactly the same as the asset underlying the futures contract.  The hedger may be uncertain as to the exact date when the asset will be bought or sold. Often the hedge may require the futures contract to be closed out well before its expiration date. This could result in an imperfect hedge.  The expiration date of the hedge may be later than the delivery date of the futures contract. When this happens, the hedger would be required to close out the futures contracts entered into and take the same position in futures contracts with a later delivery date. This is called a rollover. Hedges can be rolled forward many times. However, multiple rollovers could lead to short term cash flow problems.
  • 52. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 52 Speculation: Speculators accept the risk that hedgers seek to avoid, giving the market the liquidity required to service commercial hedge participants effectively by providing the market with the necessary bids and offers to implement a continuous flow of transactions. Speculation is the opposite of hedging. A speculator holds no offsetting cash market position and deliberately incurs price risk in order to reap its potential reward. General strategies for speculating: In general, the speculator takes a view on the market and plays accordingly. If one is bullish on the market, one can buy futures, and vice versa for bearish outlook. There is another strategy of playing the spreads, in which case the speculators trades the “basis”. When a basis risk is taken, the speculator primarily bets on either the cost of carry (interest rate in case of index futures) going up ( in which case he would pay the basis) or going down (receive the basis).
  • 53. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 53 ANALYSIS AND INTERPRETATION
  • 54. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 54 I have taken 3 products to study and to analyze. 1. Gold 2. Silver 3. Wheat A futures contract on a commodity  Gold A futures contract on a commodity Gold and work out the price of the contract. The spot price of gold is Rs.9428/ 10gms. If the cost of financing is 12% annually, what should be the futures price of 10gms of gold two months down the line? Let us assume that we're on 15st may 2006. How would we compute the price of a gold futures contract expiring on 20th July? From the discussion above we know that the futures price is nothing but the spot price plus the cost-of-carry. Let us first try to work out the components of the cost-of-carry model. The spot price of gold, S= Rs.9428/ 10gms. The cost of financing for 66 days e0.12*(66/365) Let us assume that the storage cost = 0. In this case the fair value of the futures, works out to be = Rs.9634.756 9428* e0.12*(66/365) =9634.756 If the contract was for a three-month period i.e. expiring on 30th June, the cost of financing would increase the futures price. Therefore, the futures price would.
  • 55. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 55 9428* e0.12*(90/365) =9711.13 In the example above we saw how a futures contract on gold could be priced using arbitrage arguments and the cost-of-carry model. In the example we considered, the gold contract was for 10 grams of gold. Hence we ignored the storage costs. However, if the one-month contract was for a 1kgs or more of gold instead of 10gms, then it would involve non-zero holding costs which would include storage and insurance costs. The price of the futures contract would then be Rs.9634.756 plus the holding costs. Table gives the indicative warehouse charges for accredited warehouses/ vaults that will function as delivery centers for contracts that trade on the NCDEX. Warehouse charges include a fixed charge per deposit of commodity into the warehouse, and a per unit per week charge. The per unit charges include storage costs and insurance charges. Table 1: NCDEX – Inactive warehouse charges
  • 56. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 56 We saw that in the absence of storage costs, the futures price of a commodity that is an investment asset is given by . . Storage costs add to the cost of carry. If „U‟ is the present value of all the storage costs that will be incurred during the life of a futures contract, it follows that the futures price will be equal to Where: r Cost of financing (annualized) T Time till expiration U Present value of all storage costs. For ease of understanding let us consider a one-year futures contract on gold. Suppose the fixed charge is Rs.310 per deposit up to 1 kg. And the variable storage costs are Rs.55 per week per Kg, it costs Rs.518.65 to store one kg of gold for a year (9.43 weeks). Assume that the payment is made at the beginning of the year. the spot gold price is Rs.8472 per 10 grams and the risk-free rate is 10% per annum. What would the price of one year gold futures be if the delivery unit is one kg? Total price per Kg is = ((9428*1000)/10) = Rs942800 F= (942800+310+518.65) e(0.12*(66/365)) F = 964322.43
  • 57. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 57 We see that the two-month futures price of a kg of gold would be Rs. 964322.43 The Two-months futures price for 10 grams of gold would be about = Rs.9643.22 2) A futures contract on a commodity  Silver The spot price of silver, S= Rs.17028 per kg. . cost of financing for 66 days? e0.12*(66/365) Let us assume that the storage cost = 0. In this case the fair value of the futures, works out to be = Rs.17401.42 17028* e0.12*(66/365) =17401.42 If the contract was for a three-month period i.e. expiring on 30th June, the cost of financing would increase the futures price. Therefore, the futures price would. 17028* e0.12*(90/365) =17539.35
  • 58. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 58 3) A futures contract on a commodity  Wheat Take per Example June 21st future contract of Wheat for 1 quintal. And we are in the June 1st ; spot price is Rs.871.60 per quintal. The spot price of Wheat, S= Rs.871.60/ 100kg. The cost of financing for 21 days or 3 weeks? e(0.12*(21/365)) Let us assume that the storage cost = 0. In this case the fair value of the futures, works out to be = Rs.890.71 871.60* e(0.12*(21/365)) = 890.71 And now we will calculate for 100 quintals considering the costs involved. Total amount for 100 quintals are (871.60*100) = Rs.87160 The fixed charges per quintal = Rs.110 Variable charges/ premium =Rs.7 per Quintal per week, for 100 quintals (7*100) = Rs.700 and for 3 weeks = Rs.2100 F=(87160+110+2100) e(0.12*(21/365)) = 89986.653
  • 59. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 59 We see that the 3 weeks futures price of 100 quintals of wheat considering cost would be Rs.89986.653. The 3 weeks futures price for quintal of Wheat without considering cost would be about = Rs890.71 GRAPHICAL REPRESENTATION
  • 60. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 60 Q.NO 1 : Which among these investment criteria you usually prefer? Investment Criteria 0 10 20 30 40 50 60 70 Bank Deposit RealEstate stocks life insuarnce G old M utualfunds Bonds Derivatives m arketO thers Criteria's NoofResponses Series6 Series1 Series2 Series5 Series4 Series3 Interpretation: Bank Deposit Real Estate Stocks Life Insurance Gold Mutual Funds Bonds Derivates Market Others 66 41 48 50 57 39 46 38 13
  • 61. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 61 According to the survey we came to know that 66 respondents are invested in Bank deposits,41 are in Real eastae,48 in stocks,50 in life insurance,57 in Gold,39 in Mutual funds,46 in Bonds,38 in Derivatives Market,and13 others. so most of the respondents are invested in Bank deposits and Gold. Q.No.2 : Are you aware of commodity Market? Yes No 37% 63% Interpretation : 0 10 20 30 40 50 60 70 No of Responden ts Opinoins Awarness of Commodity Market Yes No
  • 62. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 62 The awareness level of respondents towards commodity market is 37% and 63 % of the respondents are not aware of the commodity market. So majority of he respondents are not aware of this commodity market. So Awareness has to be made. Q.No3 : Are you invested in Commodity market? yes No 35% 65% Interpretation: 0 10 20 30 40 50 60 70 NO of responses opnions Investment in commodity market Yes NO
  • 63. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 63 By conducting this survey we found that 35% of respondents are invested in commodity market. And 65 % of the respondents are not invested in commodities. So here the majority is lies with the respondents who are not invested in commodities. Q.No4 : If yes, since how long are you trading with commodities? <1 year 1-3 years >3 years 35% 20% 5% Interpretation: From this we can know that 35% of the respondents are invested less then one year., and 20% of respondents are invested in 1to 3 years and 5% of respondents
  • 64. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 64 invested in more then three years. so here majority lies with the respondents who have invested in less then one year. Q .No 5 : If no, would you like to have knowledge of commodities market? Yes No 60% 40%
  • 65. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 65 Interpretation: From this we find that 60% of the respondents they would like to have the knowledge of commodity market and 40% respondents are not interested to know about this commodity market. Hence we should give them the knowledge of commodity market in best manner. Q.No6: Which among these commodities are you interested to trade with? How do you rate them? Gold 48 48.5 49 49.5 50 50.5 51 No of responses opnions Knowledge of Commodity Market Yes No
  • 66. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 66 Yes No 73% 27% 0 20 40 60 80 No of response s Yes No opinoins Gold Series1 Interpretation: Among the different commodities 73% of the respondents are interested to trade in Gold, and 27% of the respondents are not interested to trade in gold. Here the majority of the respondents are interested to trade in gold . Silver
  • 67. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 67 0 20 40 60 No of responses Yes No opinions Silver Series1 Series2 Interpretation: Here 42% of the respondents are interested to trade in Silver, and 58% of respondents are not interested to trade in this silver. Hence most of the respondents does not interested to trade in silver. Crude Oil Yes No 42% 58%
  • 68. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 68 Yes No 75% 25% 0 10 20 30 40 50 60 70 80 No of Response s Yes No opinions Crude oil Series1 Series2 Interpretation From this we came to know that 75% of the respondents are interested to trade in Crude oil ,and 25%of the respondents are not interested to trade in this commodity. Hence majority lies with the respondents who are interested to invest in this crude oil. Sugar
  • 69. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 69 0 10 20 30 40 50 60 70 No of Responses Yes No Opinion Sugar Series1 Series2 Series3 Series4 Interpretation: Here 69% of the respondents are interested to invest in sugar ,and 31% of respondents are not interested to invest in this crude oil. So majority of the respondents are interested to invest in this crude oil. Yes No 69% 31%
  • 70. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 70 Wheat 0 10 20 30 40 50 60 70 No of responses Yes No Opinions Wheat Series1 Series2 Series3 Series4 Interpretation: Here39% of the respondents are interested to trade in this wheat but 61% of respondents are not interested to trade in this commodity .so majority here is that most of the respondents are not interested to trade in wheat. Yes No 39% 61%
  • 71. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 71 Gold (Ratings) Interpretation: From this survey we can know that 31% of respondents have given 1 preference to gold .32% are given 2 preference ,14%respondents have given3rd preference,11%are given 4Th preference 12% have given 5ht preference. so majority here is 32% of respondents have given 2nd preference. Items Gold Silver Crude oil Sugar Wheat Ratings 31% 32% 14% 11% 12%
  • 72. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 72 Silver(Ratings) Items Gold Silver Crude oil Sugar Wheat Ratings 28% 32% 14% 14% 12% Interpretation: From this survey we can know that 28% of respondents have given 1 preference to Silver .32% are given 2 preference ,14%respondents have given3rd preference,14%are given 4Th preference 12% have given 5ht preference. So majority here is 32% of respondents have given 2nd preference.
  • 73. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 73 Crude oil (Ratings) Interpretation: From this survey we can know that 20% of respondents have given 1 preference to Crude oil .14% are given 2 preference, 35%respondents have given3rd reference,17%are given 4Th preference 14% have given 5ht preference. so majority here is 35% of respondents have given 3rd preference to the crude oil. . Items Gold Silver Crude oil Sugar Wheat Ratings 20% 14% 35% 17% 14%
  • 74. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 74 Sugar(Ratings) Interpretation: From this survey we can know that 27% of respondents have given 1 preference to Sugar.14% are given 2 preference ,15%respondents have given3rd preference,34%are given 4Th preference 10% have given 5ht preference. so majority here is 34% of respondents have given 4th preference to the sugar . Items Gold Silver Crude oil Sugar Wheat Ratings 27% 14% 15% 34% 10%
  • 75. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 75 Wheat(Ratings) Interpretation: From this survey we can know that 13% of respondents have given 1 preference to Wheat.15% are given 2 preference ,24%respondents have given3rd preference,13%are given 4Th preference 35% have given 5ht preference. so majority here is 34% of respondents have given 5th preference to the wheat.. Items Gold Silver Crude oil Sugar Wheat Ratings 13% 14% 24% 13% 35%
  • 76. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 76 Q.No7: Which Factors do you normally see while trading in commodity market? Factors for Trading in commodity market 0 5 10 15 20 25 30 35 PriceSeason M arketRate RiskReturnsliquidity Saftey Factors NoofResponses Series1 Series2 Series3 Series4 Series5 Interpretation: From this survey we found that while trading in commodity market 30%of the respondents will see this price factor while investing in this. And 5% will Price Season Market Rate Risk Returns Liquidity Safety 30% 5% 7% 20% 27% 5% 6%
  • 77. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 77 see season ,7&% will see market rate and 20% will see risk ,27%will see the returns 5% will see liquidity and remaining 6% will see safety while investing in this commodity market. Q.No8: Which facilities do you expect from service provider of a commodity trading? Up-To Date Information 1 2 3 4 5 18% 36% 18% 17% 11% Interpretation: Here 18% of the respondents expect up-to date information from the service provider, and 36% of respondents will expect market knowledge ,18% will expect less brokerege
  • 78. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 78 ,17% will see the comforts, 11% will expect Good service.so majority of the respondents will expect Market knowledge from the service provider of the commodity. Market Knowledge Interpretation: 1 2 3 4 5 46% 16% 13% 15% 10%
  • 79. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 79 Here 46% of the respondents expect up-to date information from the service provider, and 16% of respondents will expect market knowledge ,13% will expect less brokerage ,15% will see the comforts, 10% will expect Good service. so majority of the respondents will expect up-to date information from the service provider of the commodity. Less Brokerage Interpretation: 1 2 3 4 5 70% 3% 6% 14% 7%
  • 80. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 80 Here 70% of the respondents expect up-to date information from the service provider, and 3% of respondents will expect market knowledge ,6% will expect less brokerage ,14% will see the comforts, 7% will expect Good service.so majority of the respondents will expect Up-to –date information from the service provider of the commodity. Comforts 1 2 3 4 5 15% 11% 19% 24% 31% 0 10 20 30 40 No of Response s Ratings Comforts Series1 15 11 19 24 31 1 2 3 4 5
  • 81. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 81 Interpretation: Here 15% of the respondents expect up-to date information from the service provider, and11% of respondents will expect market knowledge ,19% will expect less brokerage ,24% will see the comforts, 31% will expect Good service.so majority of the respondents will expect Good Service.from the service provider of the commodity. Good Service 1 2 3 4 5 16% 26% 13% 16% 19%
  • 82. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 82 0 10 20 30 No of Response s Ratings Good Service Series1 16 26 13 16 29 1 2 3 4 5 Interpretation: Here 16% of the respondents expect up-to date information from the service provider, and 26% of respondents will expect market knowledge, 13% will expect less brokerage, 16% will see the comforts, 29% will expect Good service. So majority of the respondents will expect Good Service from the service provider of the commodity.
  • 83. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 83 FINDING & SUGGESTIONS Findings  Commodity Futures have a bright future in coming days.  Deciding on the prices depending on the formulas may go wrong. Because it is cost plus carry, but in real sense the prices may even go down than the spot prices.  Price of a commodity is dependent on its demand and supply of that commodity in the market.
  • 84. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 84  As the commodity future market is new and emerging, many investors and farmers are not fully aware of this market. As this market, helps them to trade transparently without middlemen or agents to earn the good profits.  Consumption products are perishable in nature, so investing in these commodities are risky, as compared to investment commodities. And also there is a normal loss may arise which should be bared by the trader in case he wants delivery.  Here 63% of the respondents are not aware of the commodity market.  There is no growth in commodity market, and it is in the initial stage.  65% of the respondents are not invested in commodity market.  60% of respondents are interested to invest in the commodity market.  73% of the respondents are interested to invest in the gold,42%in silver,75%in crude oil,69%in sugar,39%in wheat.  Most important factor the respondents will see while investing is Price 30% and 27% Returns.  The investor has to invest only 5% of margin and he can hold the commodity.  The commodity market prices depend upon the demand & supply as well as on global market.  The investor should know the market idea, within a range he has to play. In spot market for commodity, the investors have to understand the price movement, and in future market it is difficult to play without knowing the spot market. Suggestions:  Creating the awareness among the people and farmers about commodity market through:  Making presentations in the villages to the farmers by video and explaining them the uses and benefits of the commodity market
  • 85. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 85  Educate them on how to trade the commodity futures, i.e. getting in to the contract before harvesting only, to get the minimum guarantees.  The Company should inform the benefits of Commodity trading to the present investors who are investing in cash market.  Agents should be given information regarding changes in the price margins of different commodities, because they are not aware of the market.  Company should approach people who are already into the business of gold, silver , sugar ,crude oil etc.  Through personal contact we can create awareness. Conclusion: The commodity futures market is new and emerging market. The awareness of the market is very less among the farmers who can use this trade to sell their products without the middlemen or agents it also helps the actual buyers
  • 86. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 86 too. The study of price volatility helps the traders to trade effectively even it have some draw-backs they can be avoided with careful study and observation of current happenings in market, political issues, change in demand and supply, production and consumption pattern etc,. Here trader also can transfer his risk to some other who can handle it or can appetite the risk through hedging technique. The cash market also influences the commodity future market.
  • 87. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 87 ANNEXURE Questionnaire
  • 88. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 88 Name:__________________________________________________ Address:________________________________________________ Contact No:(Mobile/LL) __________________________________ E-Mail:_________________________________________________ Age Occupation: ____________________________________________ 1) Which among these investment criteria you usually prefer? Bank Deposits Real Estate Stocks Life Insurance Gold Mutual Funds Bonds Derivatives market Others if Specify ________________ 2) Are you aware of Commodity Market? Yes No 3) Are you invested in Commodity market? Yes No 4) If yes, since how long are you trade with Commodities? <1 year 1-3 years > 3 years
  • 89. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 89 5) If no, would you like to have knowledge of Commodities market? Yes No 6) Which among these Commodities are you interested to trade with? How do you rate them? [Rate 1 for most preferred & 5 for least preferred]. Items Gold Silver Crude Oil Sugar Wheat Yes/No Ratings 7) Which factor do you normally see while trading in commodity market? Price Season Market Rate Risk Returns Liquidity Safety 8) Which facilities do you expect from service provider of a commodity trading? (Give the ratings,1-5,1for high,5for low).
  • 90. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 90 9) Your valuable suggestions are welcomed. ________________________________________________ ________________________________________________ Thank you Data Code Sheet: Sl. Qno Q Qno Qn Qno.5A Qno.5 Qno.6 Qno.7 Up-To Date Information Market Knowledge Less Brokerage Comforts Good service
  • 91. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 91 No. 1 No 2 3 o 4 B 1 2 3 4 5 6 7 8 9 1 2 1 2 3 1 2 1 2 3 4 5 Rankings 1 2 3 4 5 6 7 1 2 3 4 5 Y N YN Y N Y N Y N 1 2 3 4 5 1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 2 1 4 3 5 2 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 1 4 5 3 3 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 1 4 2 5 3 4 1 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 2 3 4 1 5 5 1 1 1 1 1 1 1 1 1 1 1 1 1 5 2 4 3 1 1 1 1 4 2 5 3 6 1 1 1 1 1 1 1 1 1 1 1 5 2 1 3 4 1 1 1 1 2 3 4 1 5 7 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 5 4 3 8 1 1 1 1 1 1 1 1 1 1 1 1 3 5 1 2 4 1 1 1 1 1 4 5 3 2 9 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 1 5 1 1 1 3 5 4 1 2 10 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 1 3 4 2 5 11 1 1 1 1 1 1 1 1 1 1 1 1 4 5 2 1 3 1 1 1 1 2 1 3 4 5 12 1 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 2 5 1 1 1 3 4 1 5 2 13 1 1 1 1 1 1 1 1 1 1 1 5 1 4 2 3 1 1 1 1 3 4 5 1 2 14 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 1 1 5 1 4 2 3 15 1 1 1 1 1 1 1 1 1 1 1 3 2 1 4 5 1 1 1 3 4 1 5 2 16 1 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 4 5 3 1 17 1 1 1 1 1 1 1 1 1 1 1 3 5 2 1 4 1 1 1 5 4 1 2 3 18 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 3 1 4 5 2
  • 92. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 92 19 1 1 1 1 1 1 1 1 1 1 1 1 2 1 3 4 5 1 1 1 1 5 2 3 4 1 20 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 3 2 21 1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 5 1 2 4 3 22 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 4 1 3 5 2 23 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 3 2 4 5 1 24 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 5 3 1 1 1 4 1 5 3 2 25 1 1 1 1 1 1 1 1 1 1 1 2 5 1 4 3 1 1 1 2 3 1 5 4 26 1 1 1 1 1 1 1 1 1 1 2 3 1 4 5 1 1 1 2 1 3 4 5 27 1 1 1 1 1 1 1 1 1 1 3 4 5 2 1 1 1 1 1 3 2 1 4 5 28 1 1 1 1 1 1 1 1 1 1 1 5 4 3 1 2 1 1 1 4 3 5 1 2 29 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 4 3 2 5 1 30 1 1 1 1 1 1 1 1 1 1 1 2 5 4 1 3 1 1 1 3 2 1 4 5 31 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 1 2 3 4 1 5 32 1 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 2 3 1 5 4 33 1 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 4 5 1 3 2 34 1 1 1 1 1 1 1 1 1 1 3 4 5 2 1 1 1 1 1 2 1 3 4 5 35 1 1 1 1 1 1 1 1 1 1 5 4 3 2 1 1 1 1 1 5 3 4 1 2 36 1 1 1 1 1 1 1 1 1 1 1 4 5 3 2 1 1 1 1 1 2 3 4 5 1 37 1 1 1 1 1 1 1 1 1 1 1 1 4 1 5 2 3 1 1 1 4 3 1 2 5 38 1 1 1 1 1 1 1 1 1 1 1 1 1 4 5 3 1 2 1 1 1 2 1 4 3 5 39 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 2 3 40 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 1 2 3 4 1 5
  • 93. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 93 41 1 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 5 1 3 4 2 42 1 1 1 1 1 1 1 1 1 1 1 1 2 4 3 5 1 1 1 1 1 4 2 3 5 43 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 1 1 4 2 3 5 1 44 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 3 1 4 2 5 45 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 1 4 5 46 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 4 2 5 3 1 47 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 5 4 1 48 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 3 1 4 5 2 49 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 2 5 4 3 50 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 4 1 2 3 5 51 1 1 1 1 1 1 1 1 1 2 3 1 5 4 1 1 3 1 4 5 2 52 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 3 4 5 2 53 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 2 1 3 5 4 54 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 4 1 3 5 2 55 1 1 1 1 1 1 1 1 1 1 5 2 3 4 1 1 5 4 1 2 3 56 1 1 1 1 1 1 1 1 1 1 1 1 1 1 5 3 2 4 1 1 2 1 5 3 4 57 1 1 1 1 1 1 1 1 1 1 1 5 3 2 1 4 1 1 4 3 2 1 5 58 1 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 1 2 5 3 4 59 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 1 1 1 2 3 4 5 1 60 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 1 1 1 1 1 2 3 4 5 61 1 1 1 1 1 1 1 1 1 1 1 1 3 5 2 4 1 1 2 3 5 4 1 62 1 1 1 1 1 1 1 1 1 1 5 4 2 3 1 1 1 1 1 4 3 5 1 2
  • 94. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 94 63 1 1 1 1 1 1 1 1 1 1 5 3 2 1 4 1 1 1 1 2 3 5 4 64 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 1 5 1 1 1 2 1 5 4 3 65 1 1 1 1 1 1 1 1 1 1 2 3 1 5 4 1 1 1 3 1 5 4 2 66 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 4 5 3 67 1 1 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 1 1 2 5 4 3 68 1 1 1 1 1 1 1 1 1 1 2 4 5 1 3 1 1 1 1 2 1 5 4 3 69 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4 3 2 5 1 1 1 1 2 3 1 5 4 70 1 1 1 1 1 1 1 1 1 1 1 1 2 3 1 4 5 1 1 1 1 2 3 5 1 4 71 1 1 1 1 1 1 1 1 1 1 1 3 2 1 4 5 1 1 1 1 1 1 2 4 5 3 72 1 1 1 1 1 1 1 1 1 1 2 4 5 3 1 1 1 1 2 1 4 3 5 73 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 1 2 3 4 1 5 74 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 5 1 3 4 2 75 1 1 1 1 1 1 1 1 1 1 1 1 2 4 3 5 1 1 1 1 1 4 2 3 5 76 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 1 1 4 2 3 5 1 77 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 3 1 4 2 5 78 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 1 4 5 79 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 4 2 5 3 1 80 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 5 4 1 81 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 3 1 4 5 2 82 1 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 2 5 4 3 83 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 1 4 5 3 84 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 1 4 2 5 3
  • 95. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 95 85 1 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 2 3 4 1 5 86 1 1 1 1 1 1 1 1 1 1 1 1 5 2 4 3 1 1 1 1 4 2 5 3 87 1 1 1 1 1 1 1 1 1 1 1 5 2 1 3 4 1 1 1 1 2 3 4 1 5 88 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 5 4 3 89 1 1 1 1 1 1 1 1 1 1 1 1 3 5 1 2 4 1 1 1 1 1 4 5 3 2 90 1 1 1 1 1 1 1 1 1 1 1 2 3 4 1 5 1 1 1 3 5 4 1 2 91 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 1 3 4 2 5 92 1 1 1 1 1 1 1 1 1 1 1 1 4 5 2 1 3 1 1 1 1 2 1 3 4 5 93 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 2 5 1 1 1 3 4 1 5 2 94 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 4 5 3 1 95 1 1 1 1 1 1 1 1 1 1 1 3 5 2 1 4 1 1 1 5 4 1 2 3 96 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 3 1 4 5 2 97 1 1 1 1 1 1 1 1 1 1 1 1 2 1 3 4 5 1 1 1 1 5 2 3 4 1 98 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 3 2 99 1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 5 1 2 4 3 10 0 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 4 1 3 5 2 BIBLIOGRAPHY
  • 96. A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD BANGALORE Babasabpatilfreepptmba.com Page 96 Security Analysis and Portfolio Management By: Ronald Fischer and Jordan Reports Brouchers Web Sites:  www.nseindia.com  www.geojit.com  www.google.com  www.commodityindia.com