The Indian financial system consists of many institutions, instruments and markets. Financial instruments range from the common coins, currency notes and cheques, to the more exotic futures swaps of high finance. The regulatory institutions are the ones, which form the regulations, and control the Indian financial system. The Reserve Bank of India is the regulatory body, which regulates, guides controls and promotes the IFS. Financial intermediaries are the intermediaries who intermediate between the saver and investors. They lend money as well as mobilizing savings; their liabilities are towards ultimate savers, while their assets are from the investors or borrowers. Some Non-Banking institutions also act as intermediaries, and when they do so they are known as Non-Banking Financial Intermediaries. UTI, LIC, GIC & NABARD are some of the NBFC's in India. Non-intermediaries institutions do give loans but their resources are not directly obtained from the saver.
[...] Commodity investments are always considered as defensive because during the times of inflation, which adversely affects the performance of stocks and bonds, commodities provide a defense to investors, maintaining the performance of their portfolios. Commodity markets have a huge potential in the Indian context particularly because of the agro-based economy. With the government's initiative for agricultural liberalization, commodities' trading in India has gained increased momentum in activities. To increase the efficiency of the markets the Forward Markets Commission the governing body of commodities trading in India has taken several initiatives for the establishment of national level multi-commodity exchanges in India. [...]
[...] Thus from all the above conclusions of the sub-objectives, it can be concluded, “commodity futures can be used as a risk reduction and a sound investment instrument” Recommendations Since commodity futures are a new concept, more awareness must be created by marketing this investment instrument appropriately. The people who have already invested in commodity futures, to recommend their friends and family to invest here too, can create this awareness. If the minimum investment is reduced, this might induce more people to invest in commodity futures. [...]
[...] Analysis Commodity futures market is a 2 way market There are various parameters that are standardized such as delivery months, the exchange, margins, leverage, brokerage and commissions. One could take any one of the future positions out of the available ones There are many types of orders, which a client can give to his broker. The price is determined in a standardized manner Interpretation From the above analysis, it can be seen that, the commodity futures ‘modus operandi' or operating procedure is very well defined at every level, and also standardized. [...]
[...] A good low-risk portfolio diversifier A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate Less volatile, compared with, say, equities Investors can leverage their investments and multiply potential earnings Upfront margin requirement low Better risk- adjusted returns A good hedge against any downturn in equities or bonds as there is little correlation with equity and bond markets High correlation with changes in inflation No securities transaction tax levied. Why commodities preferred to stocks? Prices predictable to their cyclical and seasonal patterns Less risk Real forces of supply and demand Small margin requirement Lesser investment requirement No insider trading Entry and exit guaranteed at any point of time Cash settlement according to Mark to Market Position Relatively small commission charges Higher return The commodity market is a market where forwards, futures and options contracts are traded on commodities. [...]
[...] Liquidity risk Although commodity futures markets are liquid mostly, in few adverse situations, a person who has a position in the market, may not be able to liquidate his position. For E.g . a futures price has increased or decreased by the maximum allowable daily limit and there is no one presently willing to buy the futures contract you want to sell, or sell the futures contract you want to buy. Market risk It is the risk of adverse changes in the market price of a commodity future. [...]
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