India is among the top-5 producers of most of the commodities, in addition to being a major consumer of bullion and energy products. Agriculture contributes about 22% to the GDP of the Indian economy.
It employees around 57% of the labor force on a total of 163 million hectares of land. Agriculture sector is an important factor in achieving a GDP growth of 8-10%.
All this indicates that India can be promoted as a major center for trading of commodity derivatives.
It is unfortunate, that, during the most of 1950s to 1980s, the policies of FMC suppressed the very markets, which it was supposed to encourage and nurture to grow with times.
It was a mistake other emerging economies of the world would want to avoid. However, it is not in India alone that derivative was suspected of creating too much speculation, which would be detrimental to the healthy growth of the markets and the farmers. Such suspicions might normally arise due to a misunderstanding of the characteristics and role of derivative product.
It is important to understand why commodity derivatives are required and the role they can play in risk management. It is a common knowledge that prices of commodities, metals, shares and currencies fluctuate over time. The possibility of adverse price changes in future creates risk for businesses.
Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes. A derivative is a financial contract whose price depends on, or is derived from, the price of another asset. Two important derivatives are futures and options.
However, in India only future contract is exist in commodity market. Option has not been introduced in the market. Through this research finding, it can be claimed that there is a scope for the usage of options in Indian commodity market
It employees around 57% of the labor force on a total of 163 million hectares of land. Agriculture sector is an important factor in achieving a GDP growth of 8-10%.
All this indicates that India can be promoted as a major center for trading of commodity derivatives.
It is unfortunate, that, during the most of 1950s to 1980s, the policies of FMC suppressed the very markets, which it was supposed to encourage and nurture to grow with times.
It was a mistake other emerging economies of the world would want to avoid. However, it is not in India alone that derivative was suspected of creating too much speculation, which would be detrimental to the healthy growth of the markets and the farmers. Such suspicions might normally arise due to a misunderstanding of the characteristics and role of derivative product.
It is important to understand why commodity derivatives are required and the role they can play in risk management. It is a common knowledge that prices of commodities, metals, shares and currencies fluctuate over time. The possibility of adverse price changes in future creates risk for businesses.
Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes. A derivative is a financial contract whose price depends on, or is derived from, the price of another asset. Two important derivatives are futures and options.
However, in India only future contract is exist in commodity market. Option has not been introduced in the market. Through this research finding, it can be claimed that there is a scope for the usage of options in Indian commodity market