An Empirical Study on Gold as a Commodity Derivative
RESEARCH PAPERS
AN EMPIRICAL STUDY ON GOLD AS A COMMODITY DERIVATIVE
By DR.SURESH CHANDRA BIHARI * RAJIV AGARWAL **
* Associate Professor, IBS, Hyderabad, A.P India. , ** MBA Class of 2011, IBS, Hyderabad, A.P India. ,
ABSTRACT India is among the top 5 producer of the most of the commodities in addition to being a major consumer of bullion and energy products. Agriculture contributes more than 23% to be GDP of Indian economy. It employees around 57% of the labor force on a total of 185 million hectares of land. Agriculture sector is an important factor to 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 important to understand why commodity derivatives are required and the role they can play in risk management. It is common knowledge that prices of commodities, metals, shares and currencies fluctuate over time. The possibilities of adverse price change in future create risk for business. Derivatives are used to reduce or eliminate price risk arising from unforeseen price change. A derivative is a financial contract whose price depends on, or is derived from the price of other assets. The present study focuses primarily on how gold can be used as a commodity tool for hedging portfolio, medium of exchange, savings and investment. It first explains what is commodity, the structure of commodity market, the various types of derivative market. The study also explains the functioning of the derivative market. The various exchange for commodity market like NCDEX, MCX etc. are described. Keywords: Gold, Commodity Derivative, Hedging, Relative Strength Index, Open Interest. INTRODUCTION The high volatility in equity market with high risk and the arrival of low interest rates have increased the investor presence in alternative investments such as gold. In India, gold has traditionally played a multi-faceted role. Apart from being used for ornament purpose, it has also served as
AN EMPIRICAL STUDY ON GOLD AS A COMMODITY DERIVATIVE
By DR.SURESH CHANDRA BIHARI * RAJIV AGARWAL **
* Associate Professor, IBS, Hyderabad, A.P India. , ** MBA Class of 2011, IBS, Hyderabad, A.P India. ,
ABSTRACT India is among the top 5 producer of the most of the commodities in addition to being a major consumer of bullion and energy products. Agriculture contributes more than 23% to be GDP of Indian economy. It employees around 57% of the labor force on a total of 185 million hectares of land. Agriculture sector is an important factor to 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 important to understand why commodity derivatives are required and the role they can play in risk management. It is common knowledge that prices of commodities, metals, shares and currencies fluctuate over time. The possibilities of adverse price change in future create risk for business. Derivatives are used to reduce or eliminate price risk arising from unforeseen price change. A derivative is a financial contract whose price depends on, or is derived from the price of other assets. The present study focuses primarily on how gold can be used as a commodity tool for hedging portfolio, medium of exchange, savings and investment. It first explains what is commodity, the structure of commodity market, the various types of derivative market. The study also explains the functioning of the derivative market. The various exchange for commodity market like NCDEX, MCX etc. are described. Keywords: Gold, Commodity Derivative, Hedging, Relative Strength Index, Open Interest. INTRODUCTION The high volatility in equity market with high risk and the arrival of low interest rates have increased the investor presence in alternative investments such as gold. In India, gold has traditionally played a multi-faceted role. Apart from being used for ornament purpose, it has also served as