A

Synopsis on

A STUDY ON DEVELOPMENT OF COMMODITY MARKET

Submitted to

V.B.S. Purvanchal University, Jaunpur

In Partial Fulfillment of the requirement of the degree of

Bachelor Of Business Administration

Submitted By- supervisor -

Priya rai Miss chandan singh

BBA VI th Semester Lecturer

Roll No.- 01031

2010-2011

Technical Education & Research Institute,

P. G. College, Ravindrapuri, Ghazipur (UP)

 INTRODUCTION OF COMMODITY MARKET

Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts.

This article focuses on the history and current debates regarding global commodity markets. It
covers physical product (food, metals, electricity ) markets but not the ways that services,
including those of governments, nor investment, nor debt, can be seen as a commodity. Articles
on reinsurance markets, stock markets, bond markets and currency markets cover those concerns
separately and in more depth. One focus of this article is the relationship between simple
commodity money and the more complex instruments offered in the commodity markets.

India commodity market consists of both the retail and the wholesale market in the country. The
commodity market in India facilitates multi commodity exchange within and outside the country
based on requirements. Commodity trading is one facility that investors can explore for investing
their money. The India Commodity market has undergone lots of changes due to the changing
global economic scenario; thus throwing up many opportunities in the process. Demand for
commodities both in the domestic and global market is estimated to grow by four times than the
demand currently is by the next five years.

Commodities are products that are bought and sold on an open market. Generally, commodities
are considered extremely raw materials that are standard from market to market and producer to
producer. For example, a bushel of corn is a commodity that is virtually standard all around the
world. The same is true for crude oil, pork bellies, and any of the other various simple materials
that trade on the open exchanges.

Size of the market

The trading of commodities consists of direct physical trading and derivatives trading. Exchange
traded commodities have seen an upturn in the volume of trading since the start of the decade.
This was largely a result of the growing attraction of commodities as an asset class and a
proliferation of investment options which has made it easier to access this market.

The global volume of commodities contracts traded on exchanges increased by a fifth in 2010,
and a half since 2008, to around 2.5 billion million contracts. During the three years up to the
end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of
OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-
fold increase in value outstanding in the previous three years. Trading on exchanges in China and
India has gained in importance in recent years due to their emergence as significant commodities
consumers and producers. China accounted for more than 60% of exchange-traded commodities
in 2009, up on its 40% share in the previous year.

Commodity assets under management more than doubled between 2008 and 2010 to nearly
$380bn. Inflows into the sector totalled over $60bn in 2010, the second highest year on record,
down from the record $72bn allocated to commodities funds in the previous year. The bulk of
funds went into precious metals and energy products. The growth in prices of many commodities
in 2010 contributed to the increase in the value of commodities funds under management.

Advantages of Commodity market

Commodity markets are commonly used by investors as a hedge against inflation. During
times of high inflation prices of commodities tend to rise, as opposed to stocks and bonds, which
might drop in cash value.

Commodities have done well with globalization, as emerging nations such as China and India
have increased their purchase of commodities for their growing industries.

Disadvantages of Commodity market

Commodities can lose value when inflation is low or negative, because inflation is a measure
of prices. During economic downturns a drawback in consumer spending can reduce demand for
all goods, including those made from commodities.

The commodity market has historically been as volatile as the equity markets, and entails risk for
the investors .
Regulation of commodity markets

Cotton, kilowatt-hours of electricity, board feet of wood, long distance minutes, royalty
payments due on artists' works, and other products and services have been traded on markets of
varying scale, with varying degrees of success.

Generally, commodities' spot and forward prices are solely dependent on the financial return of
the instrument, and do not factor into the price any societal costs, e.g. smog, pollution, water
contamination, etc. Nonetheless, new markets and instruments have been created in order to
address the external costs of using these commodities such as man-made global warming,
deforestation, and general pollution. For instance, many utilities now trade regularly on the
emissions markets, buying and selling renewable emissions credits and emissions allowances in
order to offset the output of their generation facilities. While many have criticized this as a band-
aid solution, others point out that the utility industry is the first to publicly address it's external
costs. Many industries, including the tech industry and auto industry, have done nothing of the
sort.

In the United States, the principal regulator of commodity and futures markets is the Commodity
Futures Trading Commission but it is the National Futures Association that enforces rules and
regulations put forth by the CFTC.

Objectives of Commodity Market

 To understand the concept of commodity market .

 To explore the breadth of commodity market world wide and its growth in india .

 To examine the structure , functioning and regulations of Indian commodity market

 To identify the problem of Indian commodity markets and suggest measures for
improvement .
 RESEARCH METHODOLOGY

A Systematic search for an answer to a question or solution to problem is known as

RESEARCH.

According to KERLINGER defines RESEARCH , “ A Systematic , Controlled , Empirical

and Critical Investigation of Hypothetical Preposition about Pre asumes relation among
Natural Phenomenon .

Type of research design -

EXPLORATORY RESEARCH
The major purposes of exploratory studies are the identification of problems, the more
precise Formulation of problems and the formulations of new alternative courses of action. The
design of exploratory studies is characterized by a great amount of flexibility and ad-hoc
veracity.

It is based on secondary sources and it is the nature of preliminary research.

 Literature research
 Experienced survey
 Case study

DESCRIPTIVE RESEARCH

Descriptive research answers the questions who, what, where, when & how.. Although the data
descriptive is factual , accurate and systematic , the research cannot describe what caused a
situation . Thus , descriptive research cannot be used to create a casual relationship , where one
variable affects another .

DATA COLLECTION METHOD

SECONDARY DATA

Sources of Secondary Data

Following are the main sources of secondary data:

Secondary data are already available. These sources gives not only published record but
also unpublished records and periodicals.

There are various sources of secondary . They are as follows –

 I have collected from my books of library.

 I had also picked up data from journal and magazines .
 INTERNET - It is also a good source of data collection. I will collected my data
from the following websites –

 Anewers.com

 Knowthis.com

 Lic.in

 Icicipru.com

 Bajajallianz.com

Period of Study: This study has been carried out for a maximum period of 4-6 weeks.