commodity derivatives and price risk management

7/31/2019 Commodity Derivatives and Price Risk Management

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PGDM, IAMR Ghaziabad Page 1

Commodity Derivatives and Price Risk

Management

Commodity derivatives trading in India notwithstanding its long and tumultuous history, with

globalisation and recent measures of liberalisation, has witnessed a massive resurgence turning it one of

the most rapidly growing areas in the financial sector today. This project endeavours to test the efficacy

and performance of commodity derivatives in steering the price risk management. The critical analytics of

performance divulges that these markets although are yet to achieve minimum critical liquidity, almost all

the commodities throw an evidence of co-integration in both spot and future prices, presaging that these

markets are marching in the right direction of achieving improved operational efficiency, at a slower

pace. In the case of some commodities, however, the volatility in the future price has been substantiallylower than the spot price indicating an inefficient utilisation of information. Several commodities also

appear to attract wide speculative trading. Hedging proves to be an effective proposition in respect of

some commodities, while others entail moderate or considerably higher risk. As the markets develop, it

remains to be seen whether the information content of future prices could be factored in the course of

future monetary policy setting.

Introduction

In the wake of globalisation and surge in the global uncertainties, financial organisations around

the world are devising methods and instruments to contain the price risk that these uncertainties

bring. Commodity derivatives are such instruments that have been devised to achieve price risk

management by basing the value of a security on the value of an underlying commodity.

Commodity derivatives trading although has witnessed a long and chequered history, with the

recent measures of liberalisation, the sector has witnessed a massive boom in the country.

Commodity derivatives or futures markets hold a key in insulating the producers and the trade

functionaries from the seasonal and cyclical oscillations in the prices of commodities, which are

aggravated by the high income and low price elasticities of demand and the shifts in such

elasticties overtime. Derivatives markets hold an immense potential for the economy as they

stabilise the amplitude of price variations, facilitate lengthy, complex production decisions, bring

a balance between demand and supply, act as a price barometer to the farmers and the traders besides

encouraging competition. These markets while enabling price discovery and better price risk management

engender inter-temporal price equilibrium and horizontal and vertical price integration. While ensuring

price risk mitigation and remunerative returns, these markets also contribute in scaling down the


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downside risks associated with agricultural lending and thereby facilitate the flow of credit to agriculture.

Besides, these markets through the use of warehouse receipts obviate the need for collaterals, the lack of

which has currently impeded the flow of agricultural credit. They also hold a key role not only in

reinvigorating the spot markets but also triggering the diversified growth of Indian agriculture in line with

the consumption pattern. A strong, healthy, vibrant and well developed commodity exchanges can play a

pivotal role in the globalisation of international trade by imparting a competitive pricing efficiency to

exports. The promotion of derivatives trading has become imperative particularly, in the aftermath of

WTO regime to face the challenges in terms of exposure to the vicissitudes of world commodity prices

and heightened competition.

DERIVATIVES & COMMODITYAN OVERVIEW

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.

The Forward Contracts (Regulation) Act, 1952, regulates the forward/ futures contracts in

commodities all over India. As per this Act, the Forward Markets Commission (FMC) continues

to have jurisdiction over commodity forward/ futures contracts. However, when derivatives

trading in securities was introduced in 2001, the term 'security' in the Securities Contracts

(Regulation) Act, 1956 (SC(R)A), was amended to include derivative contracts in securities.

Consequently, regulation of derivatives came under the purview of Securities Exchange Board of

India (SEBI). We thus have separate regulatory authorities for securities and commodity

derivative markets. Derivatives are securities under the SC(R)A and hence the trading of

derivatives is governed by the regulatory framework under the SC(R)A. The Securities Contracts

(Regulation) Act, 1956 defines 'derivative' to include

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying Securities.


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Derivatives Markets

Derivatives markets can broadly be classified as commodity derivatives market and financial

derivatives markets. As the name suggest, commodity derivatives markets trade contracts are

those for which the underlying asset is a commodity. It can be an agricultural commodity like

wheat, soybeans, rapeseed, cotton, etc or precious metals like gold, silver, etc. or energy products

like crude oil, natural gas, coal, electricity etc. Financial derivatives markets trade contracts have

a financial asset or variable as the underlying. The more popular financial derivatives are those

which have equity, interest rates and exchange rates as the underlying. The most commonly used

derivatives contracts are forwards, futures and options which we

shall discuss in detail later.

Products, Participants And Function

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: The farmer's example that we discussed about was a case of hedging. 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 putting in smallamounts 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


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an asset getting out of line with the cash price, they would take offsetting positions in the two

markets to lock in the profit.

Whether the underlying asset is a commodity or a financial asset, derivatives market performs a

number of economic functions.

Prices in an organised derivatives market reflect the perception of market participants about

the future and lead the prices of underlying to the perceived future level. The prices of

derivatives converge with the prices of the underlying at the expiration of the derivative contract.

Thus, derivatives help in discovery of future as well as current prices.

The derivatives market helps to transfer risks from those who have them but may not like them

to those who have an appetite for them.

Derivatives, due to their inherent nature, are linked to the underlying cash markets. With the

introduction of derivatives the underlying market witnesses higher trading volumes, because of

participation by more players who would not otherwise participate for lack of an arrangement to

transfer risk.

Speculative traders shift to a more controlled environment of the derivatives market. In the

absence of an organised derivatives market, speculators trade in the underlying cash markets.

Margining, monitoring and surveillance of the activities of various participants become

extremely difficult in these kinds of mixed markets.

An important incidental benefit that flows from derivatives trading is that it acts as a catalyst

for new entrepreneurial activity. Derivatives have a history of attracting many bright, creative,

well-educated people with an entrepreneurial attitude. They often energize others to create new

businesses, new products and new employment opportunities, the benefit of which are immense.


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Derivatives markets help increase savings and investment in the long run. The transfer of risk

enables market participants to expand their volume of activity.

Spot versus Forward Transaction

Every transaction has three components - trading, clearing and settlement. A buyer and seller

come together, negotiate and arrive at a price. This is trading. Clearing involves finding out the

net outstanding, that is exactly how much of goods and money the two should exchange. In a

spot transaction, the trading, clearing and settlement happens instantaneously.

Forward contract is a contract by which two parties irrevocably agree to settle a trade at a future

date, for a stated price and quantity. No money changes hands when the contract is signed. The

exchange of money and the underlying goods only happens at the future date as specified in the

contract. In a forward contract, the process of trading, clearing and settlement does not happen

instantaneously. The trading happens today, but the clearing and settlement happens at the end of

the specified period.

A forward contract is the most basic derivative contract. We call it a derivative because it derives

value from the price of the asset underlying the contract.

Some commonly used Derivatives

Here we define some of the more popularly used derivative contracts. Some of these, namely

futures and options will be discussed in more details at a later stage.

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 standardised and exchange traded.


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Options: There are two types of options - call and put. A Call option gives 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. A Put option gives the buyer the right, but not the obligation to sell agiven quantity of the underlying asset at a given price on or before a given date.

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 futureaccording to a prearranged formula. They can be regarded as portfolios of forward contracts. The

two commonly used swaps are:

Interest rate swaps: These entail swapping only the interest related cash flows between the

parties in the same currency.

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.

Difference Between Commodity And Financial Derivative

The basic concept of a derivative contract remains the same whether the underlying happens to

be a commodity or a financial asset. However, there are some features which are very peculiar to

commodity derivative markets. In the case of financial derivatives, most of these contracts are

cash settled. Since financial assets are not bulky, they do not need special facility for storage

even in case of physical settlement. On the other hand, due to the bulky nature of the underlying

assets, physical settlement in commodity derivatives creates the need for warehousing. Similarly,

the concept of varying quality of asset does not really exist as far as financial underlyings are

concerned. However, in the case of commodities, the quality of the asset underlying a contract

can vary largely. This becomes an important issue to be managed.


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COMMODITY MARKET

In India, trading in commodity futures has been in existence from the nineteenth century withorganised trading in cotton through the establishment of Cotton Trade Association in 1875. Over

a period of time, other commodities were permitted to be traded in futures exchanges. Regulatory

constraints in 1960s resulted in virtual dismantling of the commodity futures market. It is only in

the last decade that commodity futures exchanges have been actively encouraged. In the

commodity futures market, the quinquennium after the set up of national level exchanges

witnessed exponential growth in trading with the turnover increasing from 1.29 trillion(one

trillion equals 100,000 crore) in 2003-04 to 119 trillion in 2010-11. However, the markets have

not grown to significant levels as compared to developed countries.

Furthermore, in some of the major derivative exchanges in the world such as Chicago Board ofTrade (CBOT), London International Futures and Options Exchange (LIFEE), etc, there is

convergence between the commodities and securities derivatives markets. With the globalisation

of financial markets, significant developments are taking place in the international arena in termsof electronic trading, internet based commodity exchanges and electronic communication

networks (ECNs) using multiple products and combination of networks as competitors to

exchanges. There are increasing alliances, often international, to compete effectively with

exchanges and ECNs. An overview of futures trading and the volumes traded around the worlddivulges massive divergence across the different exchanges.


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Commodity Exchange

Commodity exchanges are defined as centers where futures trade is organized in a wider sense; itis taken to include any organized market place where trade is routed through one mechanism,

allowing effective competition among buyers and among sellers. This would include auction-

type exchanges, but not wholesale markets, where trade is localized, but effectively takes place

through many non-related individual transactions between different permutations of buyers and

sellers.

Commodity Defined

In economics, a commodity is the generic term for any marketable item produced to satisfy

wants or needs Economic commodities comprise goods and services.

The more specific meaning of the term commodity is applied to goods only. It is used to describe

a class ofgoods for which there demand is, but which is supplied without qualitative

differentiation across a market

FEATURE OF COMMODITIES ,NECESSARY FOR TRADING

Standardize Quality

Available in bulk quantities

Trader in the particular commodity should be many

Basically primary sector product ready to be manufactured or product of less complicated

manufacturing process
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IMPORTANT TERMINOLOGIES USED IN FUTURE MARKET

Bear : A market trending downward, or a person who expects prices to go lower.

Bid : A bid, subject to immediate acceptance, made on the floor of exchange to buy a

definite number of futures contracts at a specified price.

Bull : A market trending upward; on a person who expects prices to go higher.

Buy on close : To buy at the end of the trading session at a price within the closing range.

Buy on

opening

:To buy at the beginning of a trading session at a price within the opening range.

Call : An option that gives the buyer the right to a long position in the underlying

futures at a specific price; the call writer (seller) may be assigned a short

position in the underlying futures if the buyer exercises the call.

Closing price

(or range)

: The price (or price range) recorded during the period designated by the

exchange as the official close.

Day orders : Orders at a limited price which are understood to be good for the day unless

expressly designated as an open order or "good-till-canceled" order.

Fundamental

analysis

: An approach to market forecasting that emphasizes the analysis of factors

affecting supply and demand (opposite of technical analysis).

Futures

contract

: A term used to designate any or all contracts covering the sale of commodities

(including financial instruments and cash representing indexes) for future

delivery made on an exchange and subject to its rules.

Limit : The maximum daily price change above or below the previous close in a

specific futures market. Trading limits may be changed during periods of

unusually high market activity.

Limit order : An order given to a broker by a customer which has some restrictions upon its

execution. such as price or time.

Margin : Cash or equivalent posted as guarantee of fulfillment of a futures contract (not


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a downpayment).

Margin call : Demand for additional funds or equivalent because of adverse pricemovements or some other contingency.

Mark-to-market : The practice of crediting or debiting a trader's account based on the daily

closing prices of the futures contracts he is long or short.

Market order : An order for immediate execution at the best available price.

Nearby : The futures contract closest to expiration.

Net position : The difference between the open contracts long and the open contracts short

held in any one commodity by any individual or group.

Spot price : The price at which the spot or cash commodity is selling on the cash or spot

market.

REGULATORY BODY

The Forward Markets Commission (FMC) is the chief regulator of forwards and futures

markets in India. As of March 2009, it regulated Rs 52 trillion worth of commodity trades in

India. It is headquartered in Mumbai and unusually for a financial regulatory agency is overseen

by the Ministry of Consumer Affairs, Food and Public Distribution (India). Mr. Ramesh

Abhishek replaced Mr. B.C. Khatua as the chairman of the commission in 2011.


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Responsibilities and functions

The functions of the Forward Markets Commission are as follows:

To advise the Central Government in respect of the recognition or the withdrawal of recognition

from any association or in respect of any other matter arising out of the administration of the

Forward Contracts (Regulation) Act 1952.

To keep forward markets under observation and to take such action in relation to them, as it may

consider necessary, in exercise of the powers assigned to it by or under the Act.

To collect and whenever the Commission thinks it necessary, to publish information regarding

the trading conditions in respect of goods to which any of the provisions of the act is made

applicable, including information regarding supply, demand and prices, and to submit to the

Central Government, periodical reports on the working of forward markets relating to such

goods;

To make recommendations generally with a view to improving the organization and working of

forward markets;

To undertake the inspection of the accounts and other documents of any recognized association

or registered association or any member of such association whenever it considers it necessary.

Present system of regulation in commodity forward/future trading in India

At present, there are three tiers of regulations of forward/futures trading system exists in India,

namely,

Government of India,

Forward Markets Commission and

Commodity Exchanges.


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The FC(R) Act, 1952 prohibits options in commodities. For the purpose of forward contracts in

certain commodities can be regulated by notifying those commodities u/s 15 of the Act; forward

trading in certain other commodities can be prohibited by notifying these commodities u/s 17 ofthe Act.

Regulatory measures prescribed by Forward Markets Commission

Forward Markets Commission provides regulatory oversight in order to ensure financial integrity

(i.e. to prevent systematic risk of default by one major operator or group of operators), market

integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand and

supply conditions) and to protect & promote interest of customers /non-members.

The Forward Markets Commission prescribes following regulatory measures:

Limit on net open position as on the close of an individual operator and at Member level to

prevent excessive speculation

Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt

upswing or downswing in prices.

Imposition of margins to prevent defaults by Members/clients

Physical delivery of contracts and penalty for default/delivery obligations

Daily mark to marketing of the contract


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STRUCTURE OF FMC

Indian Commodity Exchanges

There are more than 20 recognised commodity futures exchanges in India under the purview of

the Forward Markets Commission (FMC). The country's commodity futures exchanges are

divided majorly into two categories:


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National exchanges

Regional exchanges

List of the Exchanges

Name of the Exchanges

A. National Multi Commodity Exchanges

1 National Multi Commodity Exchange of India Ltd., Ahmedabad (NMCE)

2 Multi Commodity Exchange of India Ltd., Mumbai (MCX)

3 National Commodity & Derivatives Exchange Ltd., Mumbai (NCDEX)

4 Indian Commodity Exchange Ltd., Mumbai (ICEX)


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B. Commodity Specific Regional Exchanges

5 Ahmedabad Commodity Exchange Ltd, Ahmedabad

6 Bikaner Commodity Exchange Ltd, Bikaner

7 Bombay Commodity Exchange Ltd, Mumbai

8 Central India Commercial Exchange Ltd, Gwalior

9 Cotton Association of India, Mumbai

10 The Chember of Commerce, Hapur

11 East India Jute & Hessian Exchange Ltd., Kolkata

12 First Commodity Exchange of India Ltd, Kochi

13 Haryana Commodities Ltd., Sirsa

14 India Pepper & Spice Trade Association, Kochi

15 The Meerut Agro Commodities Exchange Company Ltd, Meerut

16 National Board of Trade, Indore

17 Rajkot Commodity Exchange Ltd., Rajkot

18 Spices & Oilseeds Exchange Ltd, Sangli

19 Surendranagar Cotton Oil & Oilseeds Association Ltd, Surendranagar

20 The Rajdhani Oil & Oilseeds Exchange Ltd, Delhi

21 Vijai Beopar Chamber Ltd., Muzaffarnagar

Features of national and regional exchanges

National Exchanges

Compulsory online trading

Transparent trading


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Exchanges to be de-mutualised

Exchange recognised on permanent basis

Multi commodity exchange

Large expanding volumes

Regional Exchanges

Online trading not compulsory

De-mutualisation not mandatory

Recognition given for fixed period after which it could be given for re regulation

Generally, these are single commodity exchanges. Exchanges have to apply for trading each

commodity

Low volumes in niche markets

TRADE TIMING

Special Session:

Monday to Saturday: 9:45 a.m. to 9:59 a.m.

Special Session (order cancellation session) is held to cancel the pending orders prior to opening

of market

Normal Session:

Monday through Friday: 10:00 a.m. to 11:30 p.m.

(up to 11:55 p.m. on account of day light savings typically between every November and March

of the following year)

Saturdays: 10:00 a.m. to 2:00 p.m.

Agri-commodities are available for futures trading up to 5:00 p.m. whereas non agri-commodities

(bullions, metals, energy products) are available up to 11:30 pm /11.50


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Major Commodities TradedBullion : Gold, Silver, Platinum

Base Metals : Nickle, Tin, Copper, Zinc, Aluminium, Lead

Cereals : Wheat, Maize, Barley,

Spices : Pepper, Red Chilli, Jeera, Turmeric, Cardamom

Energy & Gas : Crude oil, Natural Gas, Gasoline, Heating oil

Oil & Oil Seeds : Castor seeds, Soya bean, Refined Soya oil

Pulses : Chana

Others : Guar Seeds, Gur, Sugar, Mentha oil, Potato

Performance of Commodity Derivatives Market in India

A decadal overview of growth pattern reveals that the commodities such as turmeric, pepper and

castorseed witnessed a significant turnaround in their volumes as measured by their compoundgrowth rates since the late 1990s compared to the first half of the decade, while the commodities

such as gur and cotton displayed downtrend during the same period. In terms of the value of

trading, while commodities such as castorseed, and pepper witnessed a sharp rebound, others

such as cotton, gur and turmeric revealed a negative growth. There has, however, been a massive

spurt in the business of commodity derivatives trading in the recent past. The size of volumes andvalue of commodities traded tripled during. During 20010-11, the volume of trading recorded at

6,685 lakh tonnes valued at over Rs. 21 crore was more than 2 times the level of preceding year.


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In India, the primary commodities account for bulk of the value of trading on the existingcommodities derivatives market. In the last three years, they accounted for 74 per cent of total

value of derivatives trading. Although trading in other commodities such as gold silver, metals

and oil recorded only in the recent period, there has been a boom, particularly in the bullion

market (Chart 3).


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Similarly, the value of trading of agricultural commodities as a proportion GDP emanating fromagriculture witnessed a three-fold increase in 2004-05, recording a ratio over 70 per cent.

However, the value of trading of agricultural commodities as a proportion overall GDP stood at

around 37 per cent, followed by bullion (around 24 per cent), oils (6 per cent) and other metals(0.6 per cent) during 2005-06 (Table 2).

Important Developments in the Commodity Derivative Markets:

During 2010-11, forward trading was regulated in commodities at 21 recognized exchanges. The break

up of the total value of commodities traded stood as under-

Bullion - ` 54.94 lakh crore (45.98%).

Base metals - ` 26.88 lakh crore (22.50%).

Energy products - ` 23.11 lakh crore (19.34%).

Agricultural commodities- ` 14.56 lakh crore (12.19%).


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Out of 21 recognized exchanges, Multi Commodity Exchange (MCX), Mumbai, National

Commodity and Derivatives Exchange (NCDEX), Mumbai, National Multi Commodities Exchange,

(NMCE), Ahmedabad, Indian Commodity Exchange, Ltd., Gurgaon, ACE Derivatives and

Commodity Exchange, Ahmedabad, National Board of Trade (NBOT), Indore, contributed

99.84% of the total value of the commodities traded during the year.

54.94

26.88

23.11

14.56

0

10

20

30

40

50

60

Bullion Base metals Energy products Agricultural

commodities

inl

ackh

crore

Total value of commodities traded in 2010-11


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The share of various Exchanges in the total value of trade in 2010-11.

Value of the recognized Exchanges during 2010-11

Name of the Exchanges Value in ` Cr.% share to the total

value of the

commodities traded

during 2010-11.

MCX 98,41,502.90 82.36

NCDEX, Mumbai 14,10,602.21 11.81

NMCE, Ahmedabad 2,18,410.90 1.83

ICEX, Gurgaon 3,77,729.88 3.16

ACE, Ahmedabad @ 30,059.63 0.25

NBOT, Indore 51,662.06 0.43

Total of six Exchanges 1,19,29,967.58 99.84

Others 18,974.77 0.16

Grand Total 1,19,48,942.35 100

@ Value is inclusive of the value of trade at Ahmedabad Commodity Exchange, Ahmedabad.


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MULTI COMMODITY EXCHANGE OF INDIA, MUMBAI (MCX)

During 2010-11, MCX accounted for 82.36% of the total value of trade in the commodity

market. In actual terms, the total value of trade in the MCX was ` 98.42 lakh crore. During the

year, 39 commodities were traded at the MCX platform amongst which predominant

commodities traded during the year were Silver, Gold, Crude Oil, Copper, Nickel, Zinc and Lead.

The total value of trade and percentage share of each of these predominantly traded

commodities at MCX, Mumbai in 2010-11 is given below:

TOTAL VOLUME & VALUE OF COMMODITIES TRADED AT MCX, MUMBAI

2010-11

S.NO COMMODITYVOLUME (IN

LAKH TONNES)

VALUE ( ` IN

CRORES)

SHARE OF VALUE TO

TOTAL

1 SILVER 6.97 2700017.25 27.44

2 GOLD 0.13 2469246.20 25.09

3 CRUDEOIL 6317.99 1764067.84 17.92

4 COPPER 309.80 1145074.86 11.64

5 NICKEL 43.55 464577.93 4.72

6 ZINC 388.87 389457.78 3.96

% share of the commodity exchanges to the

total value of trade during the year 2010-11

(April-March)NBOT0.43%

ACE

0.25%ICEX

3.16%

MCX

82.36%

Others

0.16%NMCE

1.83%

NCDEX

11.81%

MCX NCDEX NMCE ICEX ACE NBOT Others


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7 LEAD 300.60 306414.62 3.11

8 OTHER 515.40 602646.43 6.12

TOTAL 7839.71 9841502.91 100.00

@ Volume of trading of Natural Gas not included in the total as the Unit of trading is in mmBtu.

The graphical presentation of the percentage share of the prominently traded commodities at MCX

Mumbai is given below.

1. Silver

The ready price of Silver, which was quoted at ` 26,875 per kg on 31.03.2010, rose to ` 55,900

on 31.03.2011, showing a rise of 108%. In the futures section, the price which was quoted at ` 26,935 per

kg (May 2010 contract) on 31.03.2010 rose to ` 55,970 per kg (May 2011 contract) on 31.03.2011

showing a rise of 107.80%.

% SHARE OF THE VALUE OF THE COMMODITIES TRADED AT MCX,MUMBAI DURING April'2010

TO March' 2011

OTHER

6.12%

LEAD

3.11%ZINC

3.96%

NICKEL

4.72%

COPPER

11.64%

CRUDEOIL

17.92%GOLD

25.09%

SILVER

27.44%

SILVER GOLD CRUDEOIL COPPER NICKEL ZINC LEAD OTHER


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The total quantity traded in all contracts of silver was 6.97462 Lakh tonnes valued at `

2700017.249 crore.

2. Gold:

The ready price of Gold, which was quoted at ` 16300 per 10 gm on 31.03.2010 rose to ` 20760

on 31.03.2011, showing a rise of 27.36%. In the futures section, the price which was quoted at ` 16295

per 10 gm (April 2010 contract) on 31.03.2010, rose to ` 20693 (April 2011 contract) per 10 gm on

31.03.2011 showing a rise of 26.99%.

Spot & Futures prices of Silver at M CX

25000

27500

30000

32500

35000

37500

40000

42500

45000

47500

50000

52500

55000

57500

60000

31-Mar-10

14-Apr-10

28-Apr-10

12-May-10

26-May-10

9-Jun-10

23-Jun-10

7-Jul-10

21-Jul-10

4-Aug-10

18-Aug-10

1-Sep-10

15-Sep-10

29-Sep-10

13-Oct-10

27-Oct-10

10-Nov-10

24-Nov-10

8-Dec-10

22-Dec-10

5-Jan-11

19-Jan-11

2-Feb-11

16-Feb-11

2-Mar-11

16-Mar-11

30-Mar-11

Rs.perKg

SPOT 5-May -10 5-Jul-10 4-Sep-10 4-Dec -10 5-Mar-11 5-May -11 5-Jul-11 5-Sep-11 5-Dec -11


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The total quantity traded in for all contracts of Gold traded was 0.12890 Lakh tonnes valued at `

2469246.201crore.

3. Crude Oil

The ready price of Crude Oil which was quoted at ` 3702 per Barrel on 31.03.2010 rose to ` 4668

on 31.03.2011, showing a rise of 26.09%. In the futures section, the price which was quoted at ` 3751 per

Barrel (April 2010 contract) on 31.03.2010 rose to ` 4744 (April 2011 contract) per Barrel on 31.03.2011

showing a rise of 26.47%.

Spot & Futures prices of Gold at MCX

16000

16500

17000

17500

18000

18500

19000

19500

20000

20500

21000

21500

22000

31-Mar-10

14-Apr-10

28-Apr-10

12-May-10

26-May-10

9-Jun-10

23-Jun-10

7-Jul-10

21-Jul-10

4-Aug-10

18-Aug-10

1-Sep-10

15-Sep-10

29-Sep-10

13-Oct-10

27-Oct-10

10-Nov-10

24-Nov-10

8-Dec-10

22-Dec-10

5-Jan-11

19-Jan-11

2-Feb-11

16-Feb-11

2-Mar-11

16-Mar-11

30-Mar-11

Rs.per10Gm

SPOT 5-A pr-10 5-Jun-10 5- Aug-10 5-Oc t-10 4- Dec -10 5-Feb- 11 5- Apr-11 4-Jun-11

5 -A ug -1 1 5 -Oc t- 11


26/33


The total quantity traded in Crude Oil was 6317.99250 lakh tonnes valued at `

1764067.835 crore.

SPOT & FUTURES PRICES OF SILVER AT MCX

`. PER KG

Date SPOTFUTURES CLOSING PRICES FOR CONTRACT EXPIRING ON

5-May-10 5-Jul-10 4-Sep-10 4-Dec-10 5-Mar-11 5-May-11 5-Jul-11 5-Sep-11 5-Dec-11

31-Mar-

1026875.00 26935.00 27141.00 27346.00 27506.00

15-Apr-10 27775.00 27855.00 28041.00 28246.00 28410.00

30-Apr-10 28235.00 28304.00 28297.00 28418.00 28577.00

15-May-

1029520.00 29658.00 29758.00 29931.00 30183.00

31-May-

1029263.00 29292.00 29385.00 29484.00 29215.00

15-Jun-

1029210.00 29366.00 29445.00 29551.00 29645.00

30-Jun-

1029575.00 29604.00 29607.00 29708.00 29832.00

15-Jul-10 29150.00 29170.00 29272.00 29356.00 29559.00

31-Jul-10 28644.00 28636.00 28750.00 28862.00 28950.00

Spot & Futures prices of Crude Oil at MCX

3000

3250

3500

3750

4000

4250

4500

4750

5000

31-Mar-10

14-Apr-10

28-Apr-10

12-May-10

26-May-10

9-Jun-10

23-Jun-10

7-Jul-10

21-Jul-10

4-Aug-10

18-Aug-10

1-Sep-10

15-Sep-10

29-Sep-10

13-Oct-10

27-Oct-10

10-Nov-10

24-Nov-10

8-Dec-10

22-Dec-10

5-Jan-11

19-Jan-11

2-Feb-11

16-Feb-11

2-Mar-11

16-Mar-11

30-Mar-11

Rs.perBarrel

SPOT 19-A pr-10 19-May -10 21-Jun- 10 19-Jul-10 19- Aug- 10 20-Sep- 10

20- Oc t- 10 18- Nov -10 17- Dec -10 19- Jan- 11 21- Feb- 11 21- Mar -11 18- Apr -11

19- May -11 20- Jun- 11 19- Jul- 11 19- Aug- 11 19- Sep- 11


27/33


14-Aug10 28993.00 29039.00 29194.00 29270.00 29416.00

31-Aug10 30140.00 30915.00 30887.00 30956.00 30991.00

15-Sep10 32050.00 32108.00 32220.00 32282.00 32330.00

30-Sep10 33350.00 32962.00 33097.00 33185.00 33310.00

15-Oct-10 36450.00 36106.00 36230.00 36344.00 36574.00

30-Oct-10 37075.00 37105.00 37378.00 37518.00 37625.00

15-Nov10 39575.00 39610.00 39869.00 40144.00 40329.00

30-Nov10 41805.00 43009.00 43198.00 43320.00 43428.00

15-Dec10 44250.00 44442.00 44631.00 44750.00 44832.00

31-Dec10 46065.00 46217.00 46433.00 46593.00 46712.00

15-Jan-

1144600.00 43842.00 44157.00 44306.00 44452.00

31-Jan-

1142950.00 43640.00 43936.00 44033.00 44178.00

15-Feb-

1146050.00 46390.00 47107.00 47317.00 47469.00

28-Feb-

1149600.00 49850.00 51113.00 51553.00 51919.00

15-Mar-

1152450.00 52084.00 52850.00 53481.00 54913.00

31-Mar-11

55900.00 55970.00 56609.00 57261.00 58157.00


28/33


SPOT & FUTURES PRICES OF GOLD AT MCX

`. PER 10 GRAMS

Date SPOT

FUTURES CLOSING PRICES FOR CONTRACT EXPIRING ON

5-Apr-

10

5-Jun-

10

5-Aug-

105-Oct-10

4-Dec-

10

5-Feb-

11

5-Apr-

11

4-Jun-

11

5-Aug-

115-Oct-11

31-Mar-

10

16300.0

0

16295.0

0

16436.0

0

16527.0

0

16592.0

0

15-Apr-

10

16750.0

0

16838.0

0

16920.0

0

17012.0

0

17049.0

0

30-Apr-

10

17015.0

0

17125.0

0

17208.0

0

17291.0

0

17339.0

0

15-May-

10

18177.0

0

18164.0

0

18248.0

0

18345.0

0

18327.0

0

31-May-

10

18377.0

0

18385.0

0

18398.0

0

18466.0

0

18525.0

0

15-Jun-

10

18565.0

0

18664.0

0

18747.0

0

18780.0

0

18831.0

0

30-Jun-

10

18805.0

0

18852.0

0

18926.0

0

19001.0

0

19047.0

0

15-Jul-

10

18428.0

0

18400.0

0

18488.0

0

18565.0

0

18653.0

0

31-Jul-

10

17799.0

0

17770.0

0

17937.0

0

18025.0

0

18090.0

0

14-Aug-

10

18509.0

0

18565.0

0

18662.0

0

18727.0

0

18799.0

0

31-Aug-

10

18920.0

0

19134.0

0

19236.0

0

19339.0

0

19410.0

0

15-Sep-

10

19185.0

0

19139.0

0

19232.0

0

19325.0

0

19440.0

0

30-Sep-

10

19165.0

0

19035.0

0

19239.0

0

19345.0

0

19427.0

0

15-Oct-

10

19810.0

0

19835.0

0

20006.0

0

20148.0

0

20250.0

0

30-Oct-

10

19680.0

0

19807.0

0

20000.0

0

20153.0

0

20285.0

0

15-Nov-

10

20130.0

0

20223.0

0

20415.0

0

20600.0

0

20676.0

0

30-Nov-

10

20500.0

0

20538.0

0

20807.0

0

20969.0

0

21067.0

0

15-Dec- 20533.0

20631.0 20827.0 20969.0 21152.0


29/33


10 0 0 0 0 0

31-Dec-

10

20575.0

0

20728.0

0

20921.0

0

21073.0

0

21193.0

0

15-Jan-

11

20325.0

0

20261.0

0

20487.0

0

20673.0

0

20837.0

0

31-Jan-

11

19920.0

0

19922.0

0

20170.0

0

20386.0

0

20567.0

0

15-Feb-

11

20325.0

0

20500.0

0

20734.0

0

20924.0

0

21124.0

0

28-Feb-

11

20800.0

0

20923.0

0

21227.0

0

21551.0

0

21828.0

0

15-Mar-

11

20730.0

0

20605.0

0

20907.0

0

21246.0

0

21588.0

0

31-Mar-11

20760.00

20693.00

21058.00

21375.00

21686.00

SPOT & FUTURES PRICES OF CRUDE OIL AT MCX

` PER 10 GRAMS

Date Spot19-Apr-

10

19-May-

10

21-Jun-

10

19-Jul-

10

19-Aug-

10

20-Sep-

10

20-Oct-

10

18-Nov-

10

17-Dec-

10

31-Mar-103702.0

03751.00 3769.00 3787.00

3814.0

03822.00 3829.00

15-Apr-103830.0

03800.00 3852.00 3907.00

3925.0

03961.00 3959.00

30-Apr-103796.0

03814.00 3908.00

3964.0

03995.00 4024.00 4034.00

15-May-103230.0

03264.00 3440.00

3558.0

03638.00 3689.00 3740.00

31-May-103443.0

03464.00

3526.0

03577.00 3625.00 3664.00 3695.00

15-Jun-103498.0

03556.00

3615.0

03659.00 3698.00 3744.00 3764.00

30-Jun-103533.0

0

3523.0

03563.00 3603.00 3647.00 3692.00 3714.00


30/33


15-Jul-103592.0

0

3558.0

03590.00 3622.00 3659.00 3689.00 3736.00

31-Jul-103668.0

03654.00 3686.00 3716.00 3743.00 3780.00

14-Aug-103512.0

03537.00 3580.00 3624.00 3661.00 3696.00

31-Aug-103499.0

03449.00 3526.00 3609.00 3657.00

15-Sep-10 3561.00

3514.00 3585.00 3659.00 3713.00

30-Sep-103497.0

03591.00 3650.00 3703.00

15-Oct-103653.0

03599.00 3653.00 3704.00

30-Oct-103627.0

03630.00 3689.00

15-Nov-103789.0

03854.00 3906.00

30-Nov-103927.0

03923.00

15-Dec-103973.0

04020.00

31-Dec-104034.0

0

15-Jan-114147.0

0

31-Jan-114086.0

0

15-Feb-113859.0

0

28-Feb-114441.0

0

15-Mar-114569.0

0


31/33


31-Mar-114668.0

0

SPOT & FUTURES PRICES OF CRUDE OIL AT MCX

`. PER 10 GRAM

Date Spot19-Jan-

11

21-Feb-

11

21-Mar-

11

18-Apr-

11

19-May-

11

20-Jun-

11

19-Jul-

11

19-Aug-

11

19-Se

1

31-Mar-10 3702.00

15-Apr-10 3830.00

30-Apr-10 3796.00

5-May-10 3230.00

1-May-10 3443.00

15-Jun-10 3498.00

30-Jun-10 3533.00

15-Jul-10 3592.00

31-Jul-10 3668.00 3798.00

14-Aug-10 3512.00 3730.00

1-Aug-10 3499.00 3695.00 3735.00

15-Sep-10 3561.00 3759.00 3792.00

0-Sep-10 3497.00 3743.00 3781.00 3818.00

15-Oct-10 3653.00 3754.00 3798.00 3850.00

30-Oct-10 3627.00 3737.00 3781.00 3814.00 3853.00

15-Nov-10 3789.00 3950.00 3995.00 4025.00 4056.00


32/33


30-Nov-10 3927.00 3970.00 4008.00 4056.00 4085.00 4134.00

15-Dec-10 3973.00 4074.00 4124.00 4168.00 4171.00 4224.00

31-Dec-10 4034.00 4088.00 4146.00 4198.00 4217.00 4277.00 4312.00

15-Jan-11 4147.00 4163.00 4230.00 4293.00 4357.00 4395.00 4477.00

31-Jan-11 4086.00 4229.00 4345.00 4432.00 4447.00 4569.00 4592.00

15-Feb-11 3859.00 3831.00 4009.00 4178.00 4308.00 4419.00 4484.00

28-Feb-11 4441.00 4444.00 4536.00 4588.00 4636.00 4674.00 4715.00

15-Mar-11 4569.00 4465.00 4532.00 4588.00 4636.00 4672.00 4727.00

31-Mar-11 4668.00 4744.00 4794.00 4840.00 4892.00 4942.00 4991.00


33/33

Price Risk Management

Price Risk

Price Risk is defined as the standard deviation of returns generated by any asset. This

indicates how much individual outcomes deviate from the mean. For example, an asset

with possible returns of 5%, 10% and 15% is more risky than one with possible returns

of 10%, 1% and 25%. It simply means higher the standard deviation more will be the

risk.

commodity derivatives and price risk management

Documents