Page | 1 INTRODUCTION:
Introduction of MMTC Ltd.:
INDIA'SLARGEST TRADING GIANT Established in 1963, MMTC, one of the two highest foreign exchange earner for India, is a leading international trading company with a turnover of over US$ 7 billion.
It is the largest international trading company of India and the first Public Sector Enterprise to be accorded the status of "FIVE STAR EXPORT HOUSE" by Govt Of India for long standing contribution to exports.
MMTC is the largest non-oil importer in India.
MMTC's diverse trade activities encompass Third Country Trade, Joint Ventures, Link Deals - all modern day tools of international trading.
Its vast international trade network, which includes a wholly owned international subsidiary in Singapore, spans almost in all countries in Asia, Europe, Africa, Oceania and Americas, giving MMTC a global market coverage.
INDIA'S LEADING EXPORTER OF MINERALS
MMTC is major global player in the minerals trade and is the single largest exporter of minerals from India. With its comprehensive infrastructural expertise to handle minerals, the company provides full logistic support from procurement, quality control to guaranteed timely deliveries of minerals from different ports,
Page | 2 through a wide network of regional and port offices in India, as well as international subsidiary.
MMTC has won the top export award from Chemicals and Allied Products Export Promotion Council (CAPEXIL) as the largest exporter of minerals from India for the eighteenth year in a row.
ONE OF THE WORLD'S LARGEST BUYER OF FERTILIZERS
As a leading player in fertilizers and fertilizer raw material, MMTC has become a major fertilizer marketing company in India, through planned forward integration of its import activities with the direct marketing of Urea, DAP, MOP, Sulphur, Rock Phosphate, SSP and other farming and agricultural inputs.
THE SINGLE LARGEST BULLION TRADER IN THE INDIAN SUBCONTINENT
MMTC is the largest importer of gold and silver in the Indian sub continent, handling about 146 MT of gold and 1250 MT of silver during 2008-09. MMTC supplies gold on loan and outright basis basis to the exporter, bullion dealers and jewellery manufacturers on all India basis. MMTC has retail jewellery & its own branded Sterling Silverware (Sanchi) showrooms in all the major metro cities of India. MMTC also supplies branded hallmarked gold and studded jewellery. Assay and hallmarking units have been set up at New Delhi, Ahmedabad & Kolkata for testing the purity of gold and gold articles duly accredited with Bureau of Indian Standards .
Besides organizing major jewellery exhibitions in India & abroad, MMTC also has a medallion manufacturing unit for minting of Gold/SIlver medallions. MMTC has its online retail website www.mmtcretail.com.
Page | 3 THE BIGGEST IMPORTER OF NON FERROUS METALS & INDUSTRIAL RAW MATERIAL TO INDIA
MMTC is India's largest seller of imported non-ferrous metals viz. copper, aluminium, zinc, lead, tin and nickel. It also sells imported minor metals like magnesium, antimony, silicon and mercury, as also industrial raw materials like asbestos and also steel and its products. MMTC imports
quality products conforming to international specifications like ASTM or BSS or LME approved brands.
Major institutional customers of MMTC in India are accredited with ISO-9002 status. MMTC sources its metals from empanelled suppliers including producers and traders throughout the world.
MMTC is a proud winner of gold trophy for exports of Engineering and Metallurgial product in non-SSI Sector and also awarded the All India Trophy for highest export in the category of prime metal by EEPC.
GROWING INTEREST IN AGRO PRODUCTS WORLDWIDE
MMTC is amongst the leading Indian exporters and importers of agro products. The company's bulk exports include commodities such as rice, wheat, wheat flour, soyameal, pulses, sugar, processed foods and plantation products like tea, coffee, jute etc.
Page | 4 MMTC also undertakes extensive operations in oilseed extraction, from the procurement of seeds to the production of de-oiled cakes for export, as well as the production of edible oil for domestic consumption. It also imports edible oils. MMTC has won the gold trophy from FIEO for highest exports in agritulcture & plantation product in non-SSI Sector.
GENERAL TRADING
MMTC also handles items like textiles, Mulberry raw silk, building materials, marine products, chemicals, drugs and pharmaceuticals, processed foods, hydro carbons, coal and coke.
Information on above can be supplied on request. MMTC also exports engineering products.
AN INTEGRATED GLOBAL TRADER WITH BULK HANDLING CAPABILITIES
Its comprehensive infrastructure for bulk cargo handling, with well developed arrangements for rail and road transportation, warehousing, port and shipping, operations, gives MMTC complete control over trade logistics, both for exports and imports.
The company's countrywide domestic network is spread over 75 regional, sub-regional, port and field offices, warehouses and procurement centres.
Page | 5 BROADBASED ACTIVITIES BEYOND TRADING
MMTC's progress in the recent past has taken it from monopoly status to a competitive open market player making a strong thrust towards broad basing its sphere of activities, while consolidating its core areas of business.
To create synergy between its manufacturing, trading and technology partners and to bring optimum efficiency and expertise to its operations worldwide, MMTC has promoted along with government of Orissa, a million tonnes capacity Iron & Steel plant and a 0.8 million tonne capacity Coke Oven battery with by product recovery plant and a captive power plant of 55 MW capacity.
NETWORK OF OFFICES
Its vast international trade network, includes.
One wholly owned international subsidiary in Singapore- MMTC Transnational Pte. Ltd. (MTPL)
13 Regional offices
East Zone : Kolkata, Bhubaneshwar West Zone : Mumbai, Goa, Ahmedabad
North Zone : Delhi, Jhandewalan (Delhi), Jaipur
Page | 6
1.1 FINANCIAL ANALYSIS
Highlights of Company Performance:
Highlights of Company Performance Rs In Million
2008-2009 2007-2008
Exports 45759 39114
Imports 306951 204499
Domestic 15497 20621
Other trade earnings 1967 796
Net Sales/ Trading
Earnings 370174 265030
Trading Profit 3209 4298
Profit before Taxes 2174 3246
Profit after Taxes 1402 2005
Dividend
(i) Interim Dividend on
Equity Shares 200 175
(ii) Proposed Dividend 200 275
(iii) Dividend Tax 68 67
Page | 7 Business Wise Composition 2008-2009
Product Group Wise Composition
83% 13% 4% Export Import Domestic 10% 59% 11% 9% 6% Mineral Precious Metal Agro Fertilizer Hydrocarbon Metals
Page | 8
Foreign Exchange Earnings and Outgo
Earnings outgo
Rs.in Million Rs In Million
Exports 45788.4 Imports 306271.95
Others 159.66 Interest 1007.16
Others 2132.58
Totals 45948.06 Totals 309411.69
Market Price Data of MMTC Ltd.
Month Low (Rs.) High (Rs.)
Apr-08 19,900.00 31,000.00 May-08 24,501.00 30,250.00 Jun-08 19,314.00 25,200.00 Jul-08 17,522.90 27,301.00 Aug-08 23,505.00 26,390.00 Sep-08 18,300.00 24,700.00 Oct-08 11,916.00 20,340.00 Nov-08 9,750.00 14,700.00 Dec-08 9,125.00 23,500.00 Jan-09 13,755.00 21,096.75 Feb-09 13,750.00 15,990.00 Mar-09 12,900.00 15,855.00
Page | 9 Latest Quarterly/Half yearly
As On(Months) 31-Mar-2010(3) 31-Mar-2009(3) % Change
Sales of Products/Services 172300.50 48741.70 253.50 Other Income 419.00 282.20 48.48 Total Income 172719.50 49023.90 252.32 Total Expenses 171713.40 48049.60 257.37 OPBDIT 1006.10 974.30 3.26 Interest -592.50 -356.10 66.39 Depreciation 31.10 29.10 6.87
Exceptional & Extraordinary Items -78.50 -12.40 533.06
Prior Period Adjustments 0.00 0.00 --
Provision for Tax 499.50 190.00 162.89
After Tax Profit 989.50 399.70 147.56
Equity Capital 500.00 500.00 0.00
Reserves 0.00 0.00 --
Notes To Accounts : Mar 2010
1. The financial results are based on the accounts drawn in accordance with generally accepted accounting practices consistently followed in compliance with the mandatory Accounting Standards and are reported in the format prescribed by SEBI.
Page | 10 2. Total Staff/ Administrative/Selling/other expenses/Write off amounted to Rs 63.88 crores during the period which includes Rs 47.03 crores on staff cost and Rs 16.61 crores towards administrative overheads and Rs 0.24 crores on Debts /
Claims written off.
3. Provision for deferred tax on the income for the period, if any, which is adjustable against unrecognized deferred tax assets as at March 31, 2010 shall be accounted for on reassessment of unrecognized assets in the audited accounts.
4. The financial results have been reviewed by audit committee & approved by the Board of Directors at the meeting held on April 23, 2010 & limited review of the same has been carried-out by Statutory Auditors of the company.
Page | 11 Income Statement 31-Mar-09(12) 31-Mar-08(12) 31-Mar-07(12) Profit / Loss A/C Rs mn %OI Rs mn %OI Rs mn %OI Net Sales (OI) 370174.37 100.00 265030.31 100.00 233461.36 100.00 Material Cost 359970.30 97.24 256828.30 96.91 1340.77 0.57 Increase Decrease Inventories 0.00 0.00 0.00 0.00 224901.21 96.33 Personnel Expenses 1652.80 0.45 1183.84 0.45 883.13 0.38 Manufacturing Expenses 6759.57 1.83 4316.19 1.63 779.13 0.33 Gross Profit 1791.70 0.48 2701.98 1.02 5557.12 2.38 Administration Selling and Distribution Expenses 1188.89 0.32 580.26 0.22 4502.06 1.93 EBITDA 602.81 0.16 2121.72 0.80 1055.06 0.45 Depreciation Depletion and Amortisation 125.83 0.03 126.84 0.05 79.69 0.03 EBIT 476.98 0.13 1994.88 0.75 975.37 0.42 Interest Expense 6658.69 1.80 1350.32 0.51 710.86 0.30 Other Income 8354.48 2.26 2624.67 0.99 1664.55 0.71 Pretax Income 2172.77 0.59 3269.23 1.23 1929.06 0.83 Provision for Tax 771.61 0.21 1241.16 0.47 625.29 0.27 Extra Ordinary and
Prior Period Items Net 1.01 0.00 -23.22 -0.01 -35.81 -0.02 Net Profit 1402.17 0.38 2004.85 0.76 1267.96 0.54 Adjusted Net Profit 1402.17 0.38 2004.85 0.76 1267.96 0.54 Dividend - Preference 0.00 0.00 0.00 0.00 0.00 0.00 Dividend - Equity 400.00 0.11 450.00 0.17 250.00 0.11
Page | 12 Balance Sheet 31-Mar-09 %BT 31-Mar-08 %BT 31-Mar-07 %BT Equity Capital 500.00 0.47 500.00 0.55 500.00 1.35 Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00 Share Capital 500.00 0.47 500.00 0.55 500.00 1.35
Reserves and Surplus 10733.83 10.11 9799.64 10.83 8321.28 22.51 Loan Funds 43052.01 40.56 31983.53 35.35 11298.01 30.56 Current Liabilities 48350.23 45.55 45304.13 50.07 15306.29 41.40 Provisions 3520.46 3.32 2886.29 3.19 1546.80 4.18 Current Liabilities and
Provisions 51870.69 48.86 48190.42 53.26 16853.09 45.58 Total Liabilities and
Stockholders Equity (BT) 106156.53 100.00 90473.59 100.00 36972.38 100.00
Tangible Assets Net 1296.76 1.22 1398.42 1.55 1492.02 4.04 Intangible Assets Net 0.00 0.00 0.00 0.00 0.00 0.00 Net Block 1296.76 1.22 1398.42 1.55 1492.02 4.04 Capital Work In Progress
Net 21.18 0.02 13.87 0.02 34.21 0.09
Fixed Assets 1317.94 1.24 1412.29 1.56 1526.23 4.13 Investments 2315.43 2.18 2549.71 2.82 2549.56 6.90 Inventories 5785.29 5.45 5532.08 6.11 1776.94 4.81 Accounts Receivable 19296.39 18.18 14907.18 16.48 12693.69 34.33 Cash and Cash
Equivalents 58579.99 55.18 59520.36 65.79 14407.86 38.97 Other Current Assets 0.00 0.00 0.00 0.00 0.00 0.00 Current Assets 83661.67 78.81 79959.62 88.38 28878.49 78.11 Loans & Advances 18500.00 17.43 6272.76 6.93 3642.04 9.85 Miscellaneous Expenditure
Other Assets 58.26 0.05 22.51 0.02 15.07 0.04
Page | 13
1.2 RATIO ANALYSIS
As on 31-Mar-09 31-Mar-08 31-Mar-07
Return Related
Return on Total Assets (%) 0.90 4.70 4.80
Return on Networth (%) 12.50 19.70 14.80
Return on Capital Employed (%) 15.50 9.70 11.10
Profitability
Gross Margin (%) 0.50 2.30 2.40
Operating Margin (%) 0.10 0.80 0.40
Net Profit Margin (%) 0.40 0.80 0.50
Adjusted Net Profit Margin (%) 0.40 0.80 0.60
Asset Turnover(x) 7.70 8.50 13.90
Leverage
Debt/Equity ratio (x) 3.80 3.10 1.30
Total Debt/Total Assets (x) 0.80 0.80 0.60
Long term Debt/Networth (x) -- -- --
Interest Coverage (x) 0.10 1.60 1.50 Liquidity Current Ratio (x) 1.60 1.70 1.70 Quick Ratio (x) 1.60 1.60 1.80 Cash Ratio (x) 1.20 1.30 0.90 Working Capital
Working Capital to Sales (x) 0.10 0.10 0.10
Working Capital Days (days gross sales) 34.80 47.80 21.20
Receivables (days gross sales) 18.80 19.90 17.50
Creditors (days cost of sales) 22.50 33.60 19.50
FG Inventory (days cost of sales) 5.70 7.40 2.80
RM Inventory (days consumption) 5.90 81.00 8.20
Cash Flow Indicator
Operating Cash Flow/Sales (%) -3.50 9.10 -2.10
Page | 14
Book Value Per Share (Rs) 223.50 205.50 176.10
Earnings Per Share (Rs) 28.00 40.10 25.40
Dividend Per Share (Rs) 8.00 9.00 5.00
Growth(%)
Total Operating Income 39.67 13.52 42.41
Total Assets 28.39 110.33 50.10
Inferences from Ratio Analysis:
A. Return related Ratios: As we can see that the return on total assets is decreasing sharply in 2009 to 0.90. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. This trend can indicate that the company is having rough time due to volatility of commodity market and increase in depreciation. Next ratio is return on Net worth which is also declined to the lowest as compared to the last two years. ROCE indicates the efficiency and profitability of a company's capital investments. This is increased to a good percentage. In 2009 to 15.50
B. Profitability of the company can be inferred by this analysis. The GPR has declined to 0.50 from 4.70 in year 2009 as compared to the last year which is a very sharp decline. Same effect can be seen in the NET PROFIT of the company. Asset turnover ratio is also the lowest in 2009 as compared to the last year.
C. Leverage ratios indicate company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. A high debt/equity ratio generally means that a company has been aggressive in financing
Page | 15 its growth with debt. This can result in volatile earnings as a result of the additional interest expense as it can be seen in the ratio of company that it is increasing every year. Interest coverage ratio is used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. We can see that the company‟s interest coverage ratio is very low to 0.10 in 2009. It is due to the high interest paid in 2009 Rs. 6659 Million. as compared to last year which was Rs. 1350 Million.
D. Liquidity Ratios are important indicator the ability to convert an asset to cash quickly. With the above analysis we can infer that the company‟s liquidity is consistent. Company is balancing its current assets efficiently.
E. Working Capital ratios indicate company's efficiency and its short-term financial health. It has ratio to sales, days, receivables, creditors, finished goods inventory, raw material. All the year we can see that the ratios are consistent which encourages investor‟s to invest in shares of the company.
F. Operating Cash Flow/Sales (%): This ratio, which is expressed as a percentage, compares a company's operating cash flow to its net sales or revenues, which gives investors an idea of the company's ability to turn sales into cash. It would be worrisome to see a company's sales grow without a parallel growth in operating cash flow. Positive and negative changes in a company's terms of sale and/or the collection experience of its accounts receivable will show up in this
Page | 16 indicator. We can see the worrisome figures in all three years with lot of fluctuations.
G. Earnings Per Share (Rs) & Dividend Per Share (Rs): serves as an indicator of a company's profitability. As we can infer from the above analysis that the company‟s book value per share is increasing but the EPS has decreased than the last year. Dividends are constant as compared to the last year.
H. Growth: Total Operating income of company is increased as compared to the last year in 2009 and Total Assets value is decreased than the last year to the lowest in three years at 28.39.
Page | 17
1.3 OVERVIEW OF RISK MANAGEMENT
UNDERSTANDING CONCEPT OF RISK:
Risk means the uncertainty associated with any activity or event or investment. Risk can be known or unknown also can be controllable or non controllable. Risk is the possibility of variance in result than that of expected. Total Risk comprises of systematic and unsystematic risk. Systematic risk means risk occurs due to the factors which are external to the organization & generally are uncontrollable e.g. Market Risk. Unsystematic risk means risk which occurs due to the internal factors of the organization & generally is controllable e.g. financial risk.
Risk is exposure to uncertainty.
Thus, risk has two components: Uncertainty and Exposure to that uncertainty. For example, if a man jumps out of an airplane with a parachute on his back, he may be uncertain as to Whether or not the chute will open. He is taking a risk because he is exposed to that uncertainty. If the chute fails to open, he will suffer personally. In this example, a typical spectator on the ground would not be taking risk. They may be equally uncertain as to whether the chute will open, but they have no personal exposure to that uncertainty. Exceptions might include:
A spectator to whom the man jumping from the plane owes money A spectator who is a member of the man‟s family
Such spectators do face risk because they may suffer financially and/or emotionally should the man‟s chute
fail to open they are exposed to the uncertainty. The financial services industry is primarily concerned with
Page | 18 1.2.1 Classification of risk
There are six major types of risk. 1. Market risk 2. Operational risk 3. Credit risk 4. Capital Risk 5. Financial Risk 6.Political Risk 1. Market risk
Today we are passing through a phase where it is not very difficult to define market risk. Anybody will agree that the world is passing through harsh crises and at this point of time any decision right from an investment decision to an expansion decision of an enterprises will impeding risk. Academically this general risk is nothing but „market risk‟.
Market risk is not very new concept; rather it has been stayed with the market itself in one form or other. Market risk is the risk which is common to an entire class of assets and liabilities. Market risk can-not be wished away by diversification it is also called „non-diversified risk‟
Market risk is the potential for loss due to change in market factors such as interest rates, exchange rates liquidity.
Types of market risk A) Currency risk B) Interest rate risk C) Liquidity risk
Page | 19 A) Currency risk
Currency risk is potential of loss caused by change in market exchange rate currencies. The corporate has seen a remarkable 69% increase in forex turnover from April 2004 reaching $3.2 . India is no exception and has also witnessed tremendous increase in its forex turnover. The massive increase in forex turnover has made both the banks and there customers vulnerable.
B) Interest rate risk
Interest rate risk is the exposure of the bank‟s financial condition to adverse movement in interest risk. Banks typically borrow for short term and led for long term and this process attract reprising risk as interest rate might increase over the period where assets would have been financed at fixed interest rate. Interest rate risk arises primarily with respect to short terms borrowings under import and export financing. The Company monitors market interest rates closely to ensure that favorable interest rates are secured. At balance sheet date, the Company has minimal exposure to interest rate risk. In Case of MMTC Limited it recovers interest rate risk through Forward Cover agreement.
C) Liquidity risk
The Company manages liquidity risk by maintaining cash and marketable securities, and available funding through an adequate amount of committed credit facilities sufficient to enable it to meet its operational requirements. The Company major classes of financial liabilities are trade and other payables and borrowings and their contractual maturities are less than one year.
Corporate faces liquidity risk due to mismatch in assets and liabilities. Liquidity risk also arises when banks do not loan able funds. In common parlance the risk that arises from the difficulty of selling an asset is called as liquidity risk. When investment banks such as Bear Stearns and Lehman started looking vulnerable,
Page | 20 their clients started to withdraw capital and unwind positions leading to run on these investment banks.
d) Foreign currency exchange rate risk
The Company's business operations are not exposed to significant foreign currency risks, as it has no significant transactions denominated in foreign currencies. Foreign Exchange dealing is a business that one get involved in, primarily to obtain protection against adverse rate movements on their core international business. Foreign Exchange dealing is essentially a risk-reward business where profit potential is substantial but it is extremely risky too.
Foreign exchange Dealings has the certain peculiarities that make it a very risky business.
These would include:
1) FX deals are across country borders and therefore, often foreign currency prices are Subject to controls and restrictions imposed by foreign authorities. Needless to say, these controls and restrictions are invariably dictated by their own domestic factors and economy.
2) FX deals involve two currencies and therefore, rates are influenced by domestic as well as international factors.
3) The FX market is a 24-hour global market and overseas developments can affect Rates significantly.
4) The FX market has great depth and numerous players shifting vast sums of money.FX rates therefore, can move considerably, especially when speculation against a currency rises.
5) FX markets are characterized by advanced technology, communications and speed. Decision-making has to be instantaneous.
Page | 21 Factors Affecting Exchange Rates
In a free market, it is the demand and supply of the currency which should determine the exchange rates but demand and supply is the dependent on many factors, which are ultimately the cause of the exchange rate fluctuation, sometimes wild. The volatility of exchange rates can not be traced to the singe reason and consequently, it becomes difficult to precisely define the factors that affect exchange rates. How ever, the more important among them are as follows:
Balance of payments Strength of economy Fiscal policy Interest rates monetary policy Political factor Exchange control
Central bank intervention Speculation
Technical factors
Expectations of the foreign exchange market
2. Operational risk:
An Operational risk is a risk arising from execution of a company‟s business functions e.g. legal or fraud risk. Operational risk is a risk of loss resulting from inadequate or failed internal processes, people and systems, etc. SGS is authorized rating agency for assessing the quality of Material.
Page | 22 3. Credit Risk
The possibility that bond issuer will default, by failing to repay principal and interest in a timely manner. Bonds issued by the federal government, for the most part, are immune from default (if the government needs money it can just print more). Bonds issued by corporations are more likely to be defaulted on, since companies often go bankrupt. Municipalities occasionally default as well, although it is much less common. It is also called as default risk. Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings as determined by international credit rating agencies. The Company has no significant concentration of credit risk. The Company has policies in place to ensure that sales of goods are made to customers with adequate financial standing and an appropriate credit history. At balance sheet date, there is no class of financial assets that is past due or impaired.
This is the worst case credit event that can take place. An intermediate credit risk occurs when the counterparty's creditworthiness is downgraded by the credit agencies causing the value of obligations it has issued to decline in value. One can see immediately that market risk and credit risk interact in that the contracts into which we enter with counterparties will fluctuate in value with changes in market prices, thus affecting the size of our credit exposure. Note also that we are only exposed to credit risk on contracts in which we are owed some form of payment. If we owe the counterparty payment and the counterparty defaults, we are not at risk of losing any future
cash flows. Different aspects of credit risk: market risk, default rates and recovery rates
The two aspects of credit risk are the market risk of the contracts into which we have entered with counterparties and the potential for some pejorative credit event
Page | 23 such as default or downgrade .We know from previous articles on "Risk Measurement" that there are ways to quantify market risk, including most notably Value-at-Risk techniques. The difficult thing is to try and calculate the probability of default or of a negative credit event. There are different
methodologies to try and calculate default risk using the credit spreads observed in the corporate bond market, historical default rates for a given class of credit, interpreting information available from financial statements and other public commentary from the counterparty's management
Credit analysis is done from Bank statement, financial statement etc of counterparty .Dun & Bradstreet & CRISIL is authorized international credit rating agency & for assessing the counterparty or client of MMTC Ltd..The company minimizing the risk through Forward cover , Letter of Credit, & Bank of Guarantee.
Letter of Credit, & Bank of Guarantee.
A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees Reduce the loss if the transaction does not go as planned A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the Payment will be made as long as the services are performed
A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially
Page | 24 insure a buyer or seller from loss or damage due to nonperformance By the other party in a contract
For example a letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bank. This letter would substitute the bank's credit for that of its client, ensuring correct and timely payment.
A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and can't pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction
.These financial instruments are often used in trade financing when suppliers, or vendors, are purchasing and selling goods to and from overseas customers with whom they don't have established business relationships. The instruments are designed to reduce the risk taken by each party.
4. Capital risk
The Company's objectives when managing capital are to ensure that the Company is adequately capitalized and to maintain an optimal capital structure by issuing or redeeming additional equity and debt instruments when necessary. The Company monitors capital on the basis of the total shareholder's equity as shown on the balance sheet. MMTC is not subject to any externally imposed capital requirements.
Page | 25 5. Financial risk factors
The Company's activities expose it to a variety of financial risk, including the effects of changes in foreign currencies exchange rates. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company. Risk management is carried out under policies approved by the Board of Directors. The Board of Directors and the holding corporation provide guidelines for overall risk management, as well as policies covering these specific areas.
RISK VARIABLES MARKETING ASPECT
1 Decreasing in market demand to the type of COMMODITY
in surrounding location.
2 Unsatisfied consumer for the products or services. 3 Difficulty for reaching the target market.
Political aspect
1 Non - conducive political climate for investment.
2 Leak of law enforcement.
3 Misuse of political power.
4 Regulation and policy aspect
5 Regulation in export-import limitation. 6 Influences of increasing in taxes policy.
7 Influences of domestic product and resources use policy.
Page | 26 9 Policy in increasing of loan interest rate.
.
Financial aspect
1 Payback Period longer than expected.
2 Break Even Point (BEP) longer than expected.
3 High of Debt / Equity Ratio
4 High of Debt / Equity Ratio
5 Fluctuation in foreign currency.
Economic aspect
1 National economic growth doesn't match the projection.
2
Uncontrolled inflation. 3
Currency devaluation.
Page | 27
1.3 Risk Areas and Events of MMTC.
Loans & Advances include Rs. 157.37 million (P.Y.Rs.157.37 million) being the amount deposited with the High Court in respect of a case which is still pending. Necessary liability towards principal amount already exists and the provision, if any, towards interest of Rs. 22.50 million (P.Y. Rs. 22.50 million) will be made after final decision of the Court.
9. Income tax of Rs. 2233.46 million (P.Y. Rs. 1717.61 million) under the head "Loans and Advances" consists of Rs.424.13 million (PY Rs. 420.36 million) paid to Income Tax Department against the disputed demands of Rs.457.06 million (P.Y. Rs. 450.36 millions) for various assessment years and advance tax/TDS/FBT of Rs. 1809.33 million (PY Rs. 1297.24 million) towards income tax/fringe benefit tax liability for financial years 2007-08 & 2008-09. Provision for additional demand, if any, will be made on completion of the Appellate Proceedings.
Valuation of closing stock at market price being lower than cost, has resulted in a loss of Rs.587.35 million (P.Y Rs.13.37 million) during the year.
During the year an amount of Rs 234.84 million towards difference in exchange has been shown under cost of sales which has arisen mainly due to adoption of notional exchange rate applicable on the date of bills of lading for initial recognition in reporting currency in respect of import purchases / export sales denominated in foreign currency.
Sale of canalized urea to Deptt. of Fertilisers(DOF), Government of India is made based on allocation letters issued by DOF and by transferring shipping documents. However, no separate agreement is signed with DOF.
Page | 28 In respect of forward exchange contracts outstanding as on 31.3.09 relating
to firm commitments and highly probable forecast transactions, the loss of Rs. Nil million (L.Y. loss of Rs. 36.11 million) has been recognized in the Profit & Loss Account on the basis of changes in exchange rate at the close of the year.
During the year 2 kg gold valued at Rs. 2.24 million was short received at Regional Office Bangalore while returning the unsold jewellery on account of exhibition against which provision for Rs 2.24 million has been made in the accounts. Departmental action has been initiated against the erring officials. Suit for recovery has been filed besides criminal complaint.
A claim for Rs 20.62 million (LY Rs 20.62 million) against an associate on account of damaged imported Polyester is pending for which a provision of Rs 15.54 million (LY Rs 15.54 million)has been made after taking into account the EMD and other payables amounting to Rs 5.08 million (LY Rs 5.08 million). The company has requested customs for abandonment which is pending for adjudication. Loans and Advances and Sundry Creditors include Rs. 7414.99 million (P.Y. Rs. 1274.65 million) being notional value of 4973 Kgs. (P.Y. 1058 Kgs) of gold belonging to foreign suppliers issued on loan basis to the Associates/ Customers of the Company.
Page | 29 INTERNATIONAL TRADE
If you walk into a supermarket and are able to buy South American bananas, Brazilian coffee and a bottle of South African wine, you are experiencing the effects of international trade
International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. It is the reason why you can pick between a Japanese, German and American car. As a result of international trade, the market contains greater competition and therefore more competitive prices, which bring a cheaper product home to the consumer
What Is International Trade?
International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.
Increased Efficiency of Trading Globally
Global trade allows wealthy countries to use their resources - whether labor, technology or capital - more efficiently. Because countries are endowed with
Page | 30 different assets and natural resources (land, labor, capital and technology), some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently produce an item, it can obtain the item by trading with another country that can. This is known as specialization in international trade
Let's take a simple example. Country A and Country B both produce cotton sweaters and wine. Country A produces 10 sweaters and six bottles of wine a year while Country B produces six sweaters and 10 bottles of wine a year. Both can produce a total of 16 units. Country A, however, takes three hours to produce the 10 sweaters and two hours to produce the six bottles of wine (total of five hours). Country B, on the other hand, takes one hour to produce 10 sweaters and three hours to produce six bottles of wine (total of four hours).
But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage. Country A then begins to produce only wine and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products. As such each country has now access to 20 units of Both Product We can see then that for both countries, the opportunity cost of producing both products is greater than the cost of specializing. More specifically, for each country, the opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products (after trading). Specialization reduces their opportunity cost and therefore maximizes their efficiency in acquiring the goods they need. With the greater supply, the price of each product would decrease, thus giving an
advantage to the end consumer as well.
Note that, in the example above, Country B could produce both wine and cotton more efficiently than Country A (less time). This is called an absolute advantage, and Country B may have it because of a higher level of technology. However, according to international trade theory, even if a country has an absolute advantage over another, it can still benefit from specialization
Page | 31 Other Possible Benefits of Trading Globally
International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign direct investment (FDI), which is the amount of money that individuals invest into foreign companies and other assets. In theory, economies can therefore grow more efficiently and can more easily Become competitive economic participant
For the receiving government, FDI is a means by which foreign currency and expertise can enter the country. These raise employment levels and, theoretically, lead to a growth in the gross domestic product. For the investor, FDI offers company expansion and growth, which means higher revenues.
Free Trade vs. Protectionism
As with other theories, there are opposing views. International trade has two contrasting views regarding the level of control placed on trade: free trade and protectionism. Free trade is the simpler of the two theories: a laissez-faire approach, with no restrictions on trade. The main idea is that supply and demand factors, operating on a global scale, will ensure that production happens efficiently. Therefore, nothing needs to be done to protect or promote trade and growth
because market forces will do so automatically.
In contrast, protectionism holds that regulation of international trade is important to ensure that markets function properly. Advocates of this theory believe that market inefficiencies may hamper the benefits of international trade and they aim to guide the market accordingly. Protectionism exists in many different forms, but the most common are tariffs, subsidies and quotas. These strategies attempt to correct any inefficiency in the
Page | 32 As it opens up the opportunity for specialization and therefore more efficient use of resources, international trade has potential to maximize a country's capacity to produce and acquire goods. Opponents of global free trade have argued, however, that international trade still allows for inefficiencies that leave developing nations compromised. What is certain is that the global economy is in a state of continual change and, as it develops, so too must all of its participants.
Page | 33
3. Commodity Market & Trading
India Commodity Market
“We are moving from a world in which the big eat the small to one in which the fast eat the slow”.
-Klaus Schwab, 2000
(Founder of the World Economic Forum)
“A strong and vibrant cash market is a pre-condition for a successful and transparent futures market.”
INTRODUCTION
The vast geographical extent of India and her huge population is aptly complemented by the size of her market. The broadest classification of the Indian Market can be made in terms of the commodity market and the bond market.
The commodity market in India comprises of all palpable markets that we come across in our daily lives. Such markets are social institutions that facilitate exchange of goods for money. The cost of goods is estimated in terms of domestic currency. India Co mmodity Market can be subdivided into the following two categories:
• Wholesale Market • Retail Market
The traditional wholesale market in India dealt with whole sellers who bought goods from the farmers and manufacturers and then sold them to the retailers after making a profit in the process. It was the retailers who finally sold the goods to the consumers. With the passage of time the importance of whole sellers began to fade out for the following reasons:
Page | 34 The whole sellers in most situations, acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers.
The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole s ellers was not felt.
In recent years, the extent of the retail market (both organized and unorganized) has evolved in leaps and bounds. In fact, the success stories of the commodity market of India in recent years has mainly centered on the growth generated by the Retail Sector. Almost every commodity under the sun both agricultural and industrial is now being provided at well distributed retail outlets throughout the country.
Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The unorganized retail outlets of the yesteryears consist of small shop owners who are price takers where consumers face a highly competitive price structure. The organized sector on the other hand are owned by various business houses like Pa ntaloons, Reliance, Tata and others. Such markets are usually selling a wide range of articles both agricultural and manufactured, edible and inedible, perishable and durable. Modern marketing strategies and other techniques of sales promotion enable such markets to 6 draw customers from every section of the society. However the growth of such markets has still centered on the urban areas primarily due to infrastructural limitations.
Considering the present growth rate, the total valuation of the Indian Retail Market is estimated to cross Rs. 10,000 billion by the year 2010.
Page | 35 Demand for commodities is likely to become four times by 2010 than what it presently is.
COMMODITY
A commodity may be defined as an article, a product or material that is bought and sold. It can be classified as every kind of movable property, except Actionable Claims, Money & Securities. Commodities actually offer immense potential to become a separate asset class for market -savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an ef ficient portfolio diversification option.
In fact, the size of the commodities markets in India is also quite significant. Of the country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent.
Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities market grows many folds here on.
Page | 36 COMMODITY MARKET
Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It i s important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market.
What is a commodity exchange?
A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority.
Page | 37 What is Commodity Futures?
A Commodity futures is an agreement between two parties to buy or sell a specified and standardized quantity of a commodity at a certain time in future at a price agreed upon at the time of entering into the contract on the commodity futures exchange.
The need for a futures market arises mainly due to the hedging function that it can perform. Commodity markets, like any other financial instrument, involve risk associated with frequent price volatility. The loss due to price volatility can be attributed to the following reasons:
Consumer Preferences: -
In the short-term, their influence on price volatility is small since it is a slow process permitting manufacturers, dealers and wholesalers to adjust their inventory in advance.
Changes in supply: -
They are abrupt and unpredictable bringing about wild fluctuations in prices. This can especially noticed in agricultural commodities where the weather plays a major role in affecting the fortunes of people involved in this industry. The futures market has evolved to neutralize such risks through a mechanism; namely hedging.
The objectives of Commodity futures: -
Hedging with the objective of transferring risk related to the possession of physical assets through any adverse moments in
Page | 38 price. Liquidity and Price discovery to ensure base minimum volume in trading of a commodity through market information and demand supply factors that facilitates a regular unauthentic price discovery mechanism.
Maintaining buffer stock and better allocation of resources as it augments reduction in inventory requirement and thus the exposure to risks related with price fluctuation declines. Resources can thus be diversified for investments.
Price stabilization along with balancing demand and supply position. Futures trading leads to predictability in assessing the domestic prices, which maintains stability, thus safeguarding against any short term adverse price movements. Liquidity in Contracts of the commodities traded also ensures in maintaining the equilibrium between demand and supply.
Flexibility, certainty and transparenc y in purchasing commodities facilitate bank financing. Predictability in prices of commodity would lead to stability, which in turn would eliminate the risks associated with running the business of trading commodities. This would make funding easier and le ss stringent for banks to commodity market players.
Benefits of Commodity Futures Markets: -
The primary objectives of any futures exchange are authentic price discovery and an efficient price risk management. The beneficiaries include those who trade in the commodities being offered in the
Page | 39 exchange as well as those who have nothing to do with futures trading. It is because of price discovery and risk management through the existence of futures exchanges that a lot of businesses and services are able to function smoothly.
1. Price Discovery:-
Based on inputs regarding specific market information, the demand and supply equilibrium, weather forecasts, expert views and comments, inflation rates, Government policies, market dynamics, hopes and fears, buyers and sellers conduct trading at futures exchanges. This transforms in to continuous price discovery mechanis m. The execution of trade between buyers and sellers leads to assessment of fair value of a particular commodity that is immediately disseminated on the trading terminal.
2. Price Risk Management: -
Hedging is the most common method of price risk management. It is strategy of offering price risk that is inherent in spot market by taking an equal but opposite position in the futures market. Futures markets are used as a mode by hedgers to protect their business from adverse price change. This could dent the profitability of their business. Hedging benefits who are involved in trading of commodities like farmers, processors, merchandisers, manufacturers, exporters, importers etc.
Page | 40 3. Import- Export competitiveness: -
The exporters can hedge their price risk and improve their competitiveness by making use of futures market. A majority of traders which are involved in physical trade internationally intend to buy forwards. The purchases made from the physical market might expose them to the risk of price risk resulting to losses. The existence of futures market would allow the exporters to hedge their proposed purchase by temporarily substituting for actual purchase till the time is ripe to buy in physical market. In the absence of futures market it will be meticulous, time consuming and costly physical transactions.
4. Predictable Pricing: -
The demand for certain commodities is highly price elastic. The manufacturers have to ensure that the prices should be stable in order to protect their market share with the free entry of imports. Futures contracts will enable predictability in domestic prices. The manufacturers can, as a result, smooth out the influence of chang es in their input prices very easily. With no futures market, the manufacturer can be caught between severe short -term price movements of oils and necessity to maintain price stability, which could only be possible through sufficient financial reserves tha t could otherwise be utilized for making other profitable investments.
Page | 41 5. Benefits for farmers/Agriculturalists: -
Price instability has a direct bearing on farmers in the absence of futures market. There would be no need to have large reserves to cover against unfavorable price fluctuations. This would reduce the risk premiums associated with the marketing or processing margins enabling more returns on produce. Storing more and being more active in the markets. The price information accessible to the farmers determines the extent to which traders/processors increase price to them. Since one of the objectives of futures exchange is to make available these prices as far as possible, it is very likely to benefit the farmers. Also, due to the time lag between pl anning and production, the market-determined price information disseminated by futures exchanges would be crucial for their production decisions.
6. Credit accessibility: -
The absence of proper risk management tools would attract the marketing and processing of commodities to high-risk exposure making it risky business activity to fund. Even a small movement in prices can eat up a huge proportion of capital owned by traders, at times making it virtually impossible to payback the loan. There is a high degree of reluctance among banks to fund commodity traders, especially those who do not manage price risks. If in case they do, the interest rate is likely to be high and terms and conditions very stringent. This posses a huge obstacle in the smooth functioning and competition of commodities market. Hedging, which is possible
Page | 42 through futures markets, would cut down the discount rate in commodity lending.
7. Improved product quality: -
The existence of warehouses for facilitating delivery with grading facilities along with other related benefits provides a very strong reason to upgrade and enhance the quality of the commodity to grade that is acceptable by the exchange. It ensures unifor m standardization of commodity trade, including the terms of quality standard: the quality certificates that are issued by the exchange -certified warehouses have the potential to become the norm for physical trade.
Page | 43
4. Structure of Commodity Market:
Page | 44
5. Commodities Traded at NCDEX:-
•1.Kapas •A.V797Kapas •2.Hessian •3.IndianCotton •A.S06LSCottonAhmedabad •B.CottonKadi •C.Indian31mmcotton •D.indian28mmcotton •E.J34MSCottonBhatinda •F.CottonAbohar •4.SttapleFibreYarn •5.Sacking •A.Jute(Btwill-665Gms)-Kollata •6.Gram •A.Gram(Chana)-NewDelhi •7.cottonbales •8.cottonseeds •A.undecorticatedcottonseedoilcake •9.LongStapleCotton •10.MediumStappleCotton •A.NEWMEDIUMSTAPLECOTTON •11.Silk •A.MulberryRawSilk-Bangalore •B.MulberryGreenCocoons-Ramnagar •12.MulberryRawSilk •13.MulberryGreenCocoons •14.Coffee-Arabica •15.CottonLongKadi •16.CottonMedAbohar •17.CottonShortStaple •18.Sugar(S-30) •19.MuatardseedOilcake •20.PPTQ •21.Cement •22.Mediumcottonyarn •23.Polyvinchlorid
Page | 45
•1. Pepper Domestic-MG1
•2.Turmeric
•A.Turmeric –Nizamabad
•3.Pepper Domestic-500g/l
•4.Black Pepper Int'l-MLS ASTA
•5.Black Pepper Int'l-VB ASTA
•6.Black pepper Int'l FAQ
•7.Pepper
•A.Pepper Dommestic-MG1.
•B.Black Pepper Int'l VB ASTA.
•C.Black Pepper Int'l-MLS ASTA.
•D.Black Pepper Int'l FAQ.
•E.Pepper Dommestic-500g/L.
•F.Pepper –Kochi
•8.Cardamom
•9.Pepper 550 G/L
•10.Red Chilly
•A.Chilli (Paala) Guntur
•B.Chilli (Paala) LCA 334
•11.Jeera
•12.Rubber RSS4
•13.Jeera Unjha
•14.CUMINSEED
•15.Arecanut
Page | 46 •1.RBD Pamolein
•A.RBD P'Olein -Kakinada •2.Groundnut Oil
•A.Groundnut Expeller Oil •3.Sunflower Oil
•4.Rapeseed/Mustardseed •A.Rapeseed -42
•B.Rape/Mustard seed -Jaipur •5.Rapeseed/Mustardseed Oil •A.EXP R/M oil -Jaipur
•B.Expeller mustard oil -Sri Ganganagar •6.Rapeseed/Mustardseed oil-Cake •7.Soy bean
•A.Soy bean -Indore •8.Soy Meal
•A.Soy Meal -Indore
•B.Yellow Soybean Meal (Export) •9.Soy Oil
•A.Ref Soya oil -Indore •10.Copra •11.CottonSeed •A.Cottonbales •12.Safflower •13.Groundnut •A.Groundnut(shell) •14.Castor oil-Int'l •15.Coconut oil •16.Copra cake •17.Groundnut oilCack
Page | 47
•18.Cottonseed oil
•19.Sesamum (Til or Jiljili) •A.Whitish Sesame Seed -Rajkot •20.Sesamum oil
•21.Sesamum OilCake •22.Safflower OilCake •23.Rice Bran
•24.Rice Bran Oil •25.Rice Bran OilCake •26.Safflower Oil •27.Sanflower OilCake •28.Sunflower Seed •29.Crude Palm Oil
•A.Crude Palm oil -Kandla •30.Cottonseed -Oilcake •A.Cotton Seed Oilcake -Akola •31.Vanaspati •32.Soybean Oilcake •33.Linseed •34.Linseed Oil •35.Linseed Oilcake •36.Coconut Oilcake •37.Mustard Seed
•38.Mustard Seed Jaipur
•39.Sesame Seed ( Natural 99.1) •40.Castorseed-Disa
•41.Mustardseed Oilcake •42.KAPASKHALI
•43.Middle east crude oil •44.refined sunflower oil
Page | 48 •1.Aluminium Ingots •2.Nickel •3.Copper •A.Copper Cathode •4.Zinc •5.Lead •6.Tin •7.Gold •A.Gold-M
•B.Pure Gold -Mumbai •C.Kilo -Gold
•D.Gold -HNI •E.SONA995MUM
•F.Pure Gold -Mumbai -1 Kg •8.Silver
•A.Silver-M
•B.Pure Silver -New Delhi -30 Kg (Mega) •C.Pure Silver -New Delhi
•D.Silver -HNI •E.CHANDIDEL •9.Steel •A.Steel -Long •B.Steel -Flat
•C.Mild Steel Ingots -Ghaziabad •10.Steel Long Bhavnagar •11.Steel Long Govindgarh •12.sponge iron
•13.GOLD AHMEDABAD •14.GOLD DELHI
•15.GOLD KOLKATA •16.GOLD MUMBAI •17.GOLD MINI DELHI •18.GOLD MINI KOLKATA •19.GOLD MINI MUMBAI •20.GOLD MINI AHMEDABAD
Page | 49 •1.Gur •A.Gur-chaku -Muzaffarnagar •2.Coffee-Plantation A •3.Potato •4.Sugar
•A.Sugar M Grade -Muzaffarnagar •B.Sugar S Grade -Vashi
•C.Sugar S Grade •D.Sugar Grade -M •E.Sugar Grade -S
•5.Coffee-Robusta Cherry AB •6.Raw Coffee Arabica Parchment •7.Raw Coffee Robusta Cherry •8.Castorseed •A.Castorseed-5 •B.Castorseed -Disa •9.Castor-oil •10.Coffee •A.Coffee-Plantation A. •B.Coffee-Robusta Cherry AB. •C.Raw Coffee Robusta Cherry. •D.Raw Coffee Arabica Parchment. •E.Arabica Coffee -Hassan
•F.Robusta Coffee -Kushalnagar •G.Arabica Coffee -Hassan (New) •H.Robusta Coffee -Kushalnagar (New) •11.Guarseed •A.Guarseed -Jodhpur •B.Guarseed -BND •12.CastorOil Cake •13.Rubber •A.Rubber -Kottayam
Page | 50
•14.Rice
•A.Basmati Rice
•B.Grade A Parboiled Rice Delhi •C.Common Parboiled Rice Delhi •D.Indian Raw Rice Parmal
•E.Indian Parboiled Rice IR-36/IR-64 •F.Grade A Raw Rice Delhi
•G.Common Raw Rice Delhi •15.Wheat
•A.Wheat -New Delhi SMQ •B.Wheat Delhi (New) •16.Raw Jute
•A.Raw Jute -Kolkata •17.GuarGum
•A.GuarGum -Jodhpur •18.Guarseed Bandhani •19.Maize
•A.Yellow Red Maize -Nizamabad •20.Guar Gum Bandhani
•21.CASHEW KERNEL W320 •A.Cashew W 320 -Kollam •22.Sugar S •23.Sugar M •24.Sarbati Rice •25.Coffee-Arabica Plantation A •26.Cashews W-320-Kollam •27.Mentha Oil •28.Sugar (S30)
•29.HIGH DENSITY POL •30.Gurchaku
•31.cardamom •32.ISABGULSEED •33.Isabgul
Page | 51
•1.Masoor
•A.masoor grain bold
•2.Urad
•A.Urad -Mumbai
•3.Tur / Arhar
•A.Lemon Tur -Mumbai
•B.Maharashtra Lal Tur -Akola
•4.Moong
•5.Yellow Peas
•A.Yellow Peas -Mumbai
•6.Chana
1.Crude Oil
2.Brent Crude Oil
3.Furnace Oil
4.Natural Gas
5. Potato
Page | 52
6. International Commodity Trading
Commodity trading is one of the preferred investment options. A huge number of investors put their money in these options for several reasons like less volatility of this market. At the same time the growth prospects of this market are also good. The commodity market investors put their money in both the national and international markets and the recent growth in the international markets have attracted more investors. Making investments in the international commodities markets is not a new concept. According to the available data, these investments were started in Osaka, Japan in the 18th century. The shipping merchants were the most prominent traders at that time. Later, international commodity trading was also started in the United States of America in the mid-nineteenth century. The commodities that were traded at that time were corns, cotton and a few other agriculturalproducts.
The trading activities in the international commodities market are regulated by a large number of agreements. The national policies of a number of countries regarding the commodity trading activities also play a major role in shaping the global commodities trading markets. The commodity exchanges play an important role in increasing the commodity trading activities among the investors. The international commodities exchanges are used widely by the investors to buy or sell the commodities to the interested people. There are a number of such exchanges and the United States of America has the maximum number of commodities followed by the United Kingdom. Only those commodities are selected for trading purpose that has huge demand in the local market. Some of these are the agricultural products, metals, petroleum etc. At the same time, there
Page | 53 are certain international commodities exchanges that have been built for the purpose of trading some particular commodities like coffee, gold, petroleum etc.
The futures and options are a part of the international commodity trading activities and the international commodity exchanges are used for future or commodity trading. Both of these are kind of contracts with different features related to the commodity trading. The trading in the international commodity markets is done at a larger scale and the closing prices are made public at the end of the day. These prices are very important for the global markets.
Some of the biggest International Commodities exchanges are the followinLondon International Financial Futures and Options Exchange
Minneapolis Grain Exchange
Chicago Board of Trade New York Board of Trade
Sydney Futures Exchange Ltd. New York Mercantile Exchange Tokyo Commodity Exchange South African Futures Exchange Chicago Mercantile Exchange
Chicago Board Options Exchange (2)
French Futures & Options Exchange
Tokyo Grain Exchange Bolsa de Mercadorias & Futuros Kansas City Board of Trade European Warrant Exchange
Hong Kong Futures Exchange Tokyo International Financial Futures Exchange
Page | 54 Many people have become very rich in the commodity markets. It is one of the few investment areas where an individual with limited capital can make extraordinary profits in a relatively short period of time. Many people lose money in commodity trading. The truth is that commodity trading is only as risky.
Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks. If you act prudently, treat your trading like a business instead of a giant gambling casino and are willing to settle for a reasonable return, the risks are acceptable. The probability of success excellent .
The process of trading commodities is also known as futures trading. Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you do not actually buy anything or own anything. You are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms "buy" and "sell" merely indicate the direction you expect future prices will take
There are many inherent advantages of commodity futures as an investment vehicle over other investment alternatives such as savings accounts, stocks, bonds, options, real estate and collectibles.
The primary attraction, of course, is the potential for large profits in a short period of time. The reason that futures trading can be so profitable is leverage.
While profits can be large in commodity trading, it is not easy to make consistently correct decisions about what and when to buy and sell. Commodity speculation offers an important advantage over such illiquid vehicles as real estate and
Page | 55 collectibles. The balance in your account is always available If you maintain
sufficient margin, you can even spend your current profit on a trade without closing out the position. With stocks, bonds and real estate, you can't spend your gains until you actually sell the investment.
Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles. The balance in your account is always available. If you maintain sufficient margin, you can even spend your current profit on a trade
without closing out the position. With stocks, bonds and real estate, you can't spend your gains until you actually sell the investment.
Commodity trading is not particularly complicated. Unlike the stock market where there are over ten thousand potential stocks and mutual funds, there are only about forty viable futures markets to trade. Those markets cover the gamut of market sectors, however, you can diversify throughout all important segments of the world economy.
There are even tax advantages to making your money from futures trading. Regardless of the actual holding period, commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains. The current maximum capital gains rate is thirty-three percent, somewhat less than the maximum rate for ordinary income. To the extent that capital gains tax rates are reduced in the future, commodity traders will benefit. If a distinction is re-established so that taxes on long-term gains are lower than on short-term gains, commodity traders will benefit.
