ABSTRACT
Indian markets recently thrown open a new avenue for retail investors and traders to participate: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. They provide risk management facility. However, India, under pressure to cool inflation running near two-year highs, banned new wheat and rice futures contracts in its fledgling exchanges in February in a bid to check speculation and hopefully tame prices. This report presents a study to find out whether futures trading leads to increase in price of essential commodities like wheat and rice. It also analyses the various factors that are leading to the increase in price of these essential commodities. Some recommendations are given to control the increase in price these essential commodities.
INTRODUCTION
Commodities Futures trading is a class of Derivatives trading, in which futures contracts derive their value from the ruling price of underlying commodities. This is a mechanism by which participants can enter into transactions for purchase and sale of commodities at a price, where the performance of delivery and payment obligation becomes due on a future date.
Futures trading in commodities in India are governed by the provisions of the Forward Contracts (Regulation) Act, 1952. As per provisions of this Act, futures trading in commodities can be conducted only by such Commodity Exchanges, which have got recognition from the Forward Markets Commission (FMC) under Section 6 of the Forward Contracts (Regulation) Act and have got specific permission from FMC to launch futures trading in specified commodities.
HISTORY
Organized commodity derivatives in India commenced nineteenth century when the Bomb ...