A

Research Project
On
“IMPACT OF COMMODITY FUTURE TRADING ON COMMODITY SPOT
PRICES WITH SPECIAL REFERENCE TO SUGAR,CHANNA&TURMERIC
ON NCDEX(1 Jan. 1,2009- Dec. 31, 2009) ”
SUBMITTED TO:
KURUKSHETRA UNIVERSITY, KURUKSHETRA,
IN THE FULFILLMENT OF DEGREE OF
“MASTER OF BUSINESS ADMINISTRATION (MBA)”
SESSION (2008-10)

UNDER THE GUIDANCE OF: SUBMITTED BY:

Miss Poonam Bakshi Shelly Singhal
Faculty MBA D/o Sh Vijay Kumar Singhal
TIMT, YNR Class:- MBA (Final)
Class Roll No.:-1125/08
Univ. Regi. No- 05-MY-1142
Univ. Roll No.

Tilak Raj Chadha Institute of Management & Technology (TIMT)

(Affiliated to Kurukshetra University, Kurukshetra and Approved By AICTE)
MLN College Educational Complex, Yamuna Nagar- 135001 (Haryana)
Ph. 01732-220103, 234110. Fax:+91-1732-220103
E-mail: info@timt.ac.in, Web Site: www.timt.ac.in
 DECLARATION

I Shelly Singhal, Roll No.1125/08, MBA (4th Semester) student of the Tilak Raj Chadha
Institute of Management and Technology, Yamunanagar hereby declare that the Research
Report entitled Impact of commodity future trading on commodity spot prices with special
reference to sugar,channa&turmeric on ncdex(1 Jan. 1,2009- Dec. 31, 2009) is an original
work and the same has not been submitted to any other Institute for the award of any other
degree.

(Shelly Singhal)
 ACKNOWLEDGEMENT

The present report is an amalgamation of hard work and contribution of experience of eminent
personality. This work is synergistic product of many minds. I am grateful for the inspiration of
many thinkers and for the hang together sources & roots of this wisdom. This project report has
been made possible through the direct & indirect co- operation of various people whom I wish to
express my thanks and gratitude’s.

First of all I would like to thank the supreme power, the Almighty GOD who is obviously the
one who has always directed me to work on the right path of my life. With his grace this project
could become a reality.

Then I express my sincere gratitude and thanks to Dr. Vikas Daryal (Director) and Mrs.
Vandana Madaan ( HOD-MBA Deptt., TIMT) for their inspiration and helpful attitude.

I am also deeply thankful to Ms. Poonam Bakshi (Faculty, TIMT YNR.) for her guidance,
regular counseling, keen interest and constant encouragement. Without her guidance, this project
would not have a successful end.
I owe my sincerely thanks to all my faculty members and the associated staff for their support
given to me time to time. Also, I would like to thank all my friends and family members for their
support given to me time to time.
Finally, with blessings of my parents who are a source of strength and inspiration for me in this
endeavor.

(Shelly Singhal)
 PREFACE

Theoretical knowledge without the practical exposure is of little value. Theoretical

studies in classroom are not sufficient to understand the functioning and nature of research.
Therefore it becomes necessary to undergo research project work. Practical project supplements
the theoretical studies i.e. it covers what is left uncovered in the classroom. It exposes a student
to invaluable pleasure of experiences.
My study topic deals with Analysis of productivity and operational efficiency of public sector
banks..

This dissertation deals with the application of theory to study the operational and productivity
efficiency on the basis of CAR, total income, interest earned, business per employee and profit
per employee. I would learn a lot of new things which could never been learned from the theory
classes. This dissertation report is a presentation of my work.

The main objective of dissertation and project i.e. familiarization with the necessary theoretical
input and to gain sufficient practical exposure to establish a distant linkage between the
conceptual knowledge acquired at the institute and practicing these concepts. .

Prior to making reference to working of the dissertation prepared the analysis, feasibility and all
other aspects were taken into consideration. In the forthcoming pages attempt has been made to
present a comprehensive report concerning different aspects of my research. The overall gain to
me will be reflected in the report itself.
EXECUTIVE SUMMARY
 Contents

Page No

1. INTRODUCTION
2. COMPANY OR INDUSTRY PROFILE
3. TOPIC
4. THEORETICAL FRAMEWORK
-CONSTRUCT
-DEPENDENT & INDEPENDENT VARIABLE
5. LITERATURE REVIEW
6. RESEARCH OBJECTIVE
7. RESEARCH METHODOLOGY

i. RESEARCH DESIGN
• TYPE OF RESEARCH DESIGN
• TIME HORIZON
• STUDY SETTING
• MEASUREMENT AND SCALING
• FLOW CHART FOR SELECTION OF STATISTICAL
TOOLS
ii. HYPOTHESIS DEVELOPMENT AND TESTING
iii. SAMPLE & SAMPLING DESIGN
iv. DATA COLLECTION
v. ANALYTIVAL TOOLS
vi. STATISTICAL TOOLS
8. DATA ANALYSIS
9. RESULTS & FINDINGS
10. POLICY IMPLICATIONS
11. SUGGESTIONS
12. BIBLIOGRAPHY
13. ANNEXURES
INTRODUCTION
 What is commodity?
A commodity may be 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 and 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 unfavorable market. But commodities are easy to understand
as for as fundamentals of demand and supply are concerned. Retail investors should understand
the risk and advantages of trading in commodities futures before keeping a leap. Historically,
pricing in commodities futures has been less volatile compared with equity and bonds that
provides an efficient portfolio diversification option.

Meaning of commodity market: Commodity markets are market where raw or primary products
are exchanged. The raw commodities are traded on regulated commodities exchanges, in which
they are bought and sold in standardized contracts.

This article focuses on the history and current debates regarding global commodity markets. It
covers physical product (food, metals, and electricity) markets but not the ways that services,
including those of government, nor investment, nor investment, nor debt can be seen as
commodity. Article on reinsurance markets, stock markets, bond markets and currency markets
cover those concerns separately and in more depth. On focus of this article is the relationship
between simple commodity money and the more complex instruments offered in the commodity
markets.

Commodity market is an important constituent of the financial markets of any country. it is the
market where a wide range of products precious metals, base metals, crude oil, energy and soft
commodities like oil, coffee etc. are traded. It is 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.
FUTURE CONTRACT:

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or

sell a certain underlying instrument at a certain date in the future, at a pre-set price. The
future date is called the delivery date or final settlement date. The pre-set price is called the
futures price. The price of the underlying asset on the delivery date is called the settlement
price. The settlement price, normally, converges towards the futures price on the delivery
date.

BASIC FEATURES OF FUTURE CONTRACT:

1.Standardization:

Futures contracts ensure their liquidity by being highly standardized, usually by specifying:

• The underlying. This can be anything from a barrel of sweet crude oil to a short term
interest rate.
• The type of settlement, either cash settlement or physical settlement.
• The amount and units of the underlying asset per contract. This can be the notional
amount of bonds, a fixed number of barrels of oil, units of foreign currency, the notional
amount of the deposit over which the short term interest rate is traded, etc.
• The currency in which the futures contract is quoted.
• The delivery month.
• The last trading date.
• Other details such as the tick, the minimum permissible price fluctuation.

2.Margin:

Although the value of a contract at time of trading should be zero, its price constantly
fluctuates. This renders the owner liable to adverse changes in value, and creates a credit risk to
the exchange, who always acts as counterparty. To minimize this risk, the exchange demands
that contract owners post a form of collateral, commonly known as Margin requirements are
waived or reduced in some cases for hedgers who have physical ownership of the covered
commodity or spread traders who have offsetting contracts balancing the position.
Initial margin: is paid by both buyer and seller. It represents the loss on that contract, as
determined by historical price changes, which is not likely to be exceeded on a usual day's
trading. It may be 5% or 10% of total contract price.

Mark to market Margin: Because a series of adverse price changes may exhaust the initial
margin, a further margin, usually called variation or maintenance margin, is required by the
exchange. This is calculated by the futures contract, i.e. agreeing on a price at the end of each
day, called the "settlement" or mark-to-market price of the contract.

To understand the original practice, consider that a futures trader, when taking a position,
deposits money with the exchange, called a "margin". This is intended to protect the exchange
against loss. At the end of every trading day, the contract is marked to its present market value. If
the trader is on the winning side of a deal, his contract has increased in value that day, and the
exchange pays this profit into his account. On the other hand, if he is on the losing side, the
exchange will debit his account. If he cannot pay, then the margin is used as the collateral from
which the loss is paid.

3.Settlement

Settlement is the act of consummating the contract, and can be done in one of two ways, as
specified per type of futures contract:

• 'Physical delivery' - the amount specified of the underlying asset of the contract is
delivered by the seller of the contract to the exchange, and by the exchange to the buyers
of the contract. Physical delivery is common with commodities and bonds. In practice, it
occurs only on a minority of contracts. Most are cancelled out by purchasing a covering
position - that is, buying a contract to cancel out an earlier sale (covering a short), or
selling a contract to liquidate an earlier purchase (covering a long). The Nymex crude
futures contract uses this method of settlement upon expiration.
• Cash settlement - a cash payment is made based on the underlying reference rate, such
as a short term interest rate index such as Euribor, or the closing value of a stock market
index. A futures contract might also opt to settle against an index based on trade in a
related spot market.
• Expiry is the time when the final prices of the future are determined. For many equity
index and interest rate futures contracts (as well as for most equity options), this happens
on the Last Thrusday of certain trading month. On this day the t+2 futures contract
becomes the t forward contract. For example, for most

How do Futures Work?

Futures are standardized contracts among buyers and sellers of commodities that specify
the amount of a commodity, grade / quality and delivery location. Commodity trading
with futures contracts takes place at a futures exchange and, like the stock market, is
entirely anonymous.

For example: the buyer might be an end-user like Kellogg’s. They need to buy corn to
make cereal. The seller would most likely be a farmer, who needs to sell his corn crop.
They create a contract of December Corn futures at the current market price. A contract
of corn at the CBOT consists of 5,000 bushels. Therefore, the farmer would have to
deliver 5,000 bushels of corn to Kellogg’s in December at a designated location.

Making Money in Futures

A speculator is someone who invests in a business with the goal of turning a profit. In the
case of commodities, speculators are traders who try to buy futures low and sell them
high to make money. The reason why speculators can do so with futures is that traders
aren’t required to hold the futures contracts for the duration of the contract; they can buy
or sell anytime they want. So, to use the Kellogg’s example above, a speculator could buy
the corn contract from the farmer at a certain price, then wait for the price of corn to go
up before selling the contract to Kellogg’s, even if the contract won’t come due for
another couple of months, turning a profit in the process.
 Players Involved in Commodities Trading

There are three different types of players in the commodity markets:

1. Commercials: The entities involved in the production, processing or merchandising of a

commodity. For example, both the corn farmer and Kellogg’s from the example above
are commercials. Commercials account for most of the trading in commodity markets.
2. Large Speculators: A group of investors that pool their money together to reduce risk
and increase gain. Like mutual funds in the stock market, large speculators have money
managers that make investment decisions for the investors as a whole.
3. Small Speculators: Individual commodity traders who trade on their own accounts or
through a commodity broker. Both small and large speculators are known for their ability
to shake up the commodities market.

How to Start Trading Commodities

In order to trade commodities, you should educate yourself on the futures contract
specifications for each commodity and of course learn about trading strategies.
Commodities have the same premise as any other investment – you want to buy low and
sell high. The difference with commodities is that they are highly leveraged and they
trade in contract sizes instead of shares. Remember that you can buy and sell positions
whenever the markets are open, so rest assured that you don’t have to take delivery of a
truckload of soybeans.

What Does Commodity Futures Contract Mean?

An agreement to buy or sell a set amount of a commodity at a predetermined price and
date. Buyers use these to avoid the risks associated with the price fluctuations of the
product or raw material, while sellers try to lock in a price for their products. Like in all
financial markets, others use such contracts to gamble on price movements
Pricing of future contract

Futures

In a futures contract, for no arbitrage to be possible, the price paid on delivery (the forward
price) must be the same as the cost (including interest) of buying and storing the asset. In other
words, the rational forward price represents the expected future value of the underlying
discounted at the risk free rate. Thus, for a simple, non-dividend paying asset, the value of the

future/forward, , will be found by discounting the present value at time to maturity

by the rate of risk-free return .

This relationship may be modified for storage costs, dividends, dividend yields, and convenience
yields; see futures contract pricing.

Any deviation from this equality allows for arbitrage as follows.

• In the case where the forward price is higher:

1. The arbitrageur sells the futures contract and buys the underlying today (on the spot
market) with borrowed money.
2. On the delivery date, the arbitrageur hands over the underlying, and receives the agreed
forward price.
3. He then repays the lender the borrowed amount plus interest.
4. The difference between the two amounts is the arbitrage profit.

In the case where the forward price is lower:

1. The arbitrageur buys the futures contract and sells the underlying today (on the spot
market); he invests the proceeds.
 2. On the delivery date, he cashes in the matured investment, which has appreciated at the
risk free rate.
3. He then receives the underlying and pays the agreed forward price using the matured
investment. [If he was short the underlying, he returns it now.]
4. The difference between the two amounts is the arbitrage profit.

Overall growth

During 2005-06, the total value of commodity futures trade was Rs. 21.34 lakh crore as
compared to Rs. 5.71 lakh crore during 2004-05 showing an increase of 274%. The volume of
trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnes
during 2004-05. The trade volume has also gone up by 244% during 2005-2006.
The trading volume and value have increased manifold after the three national –level Exchanges
were set up. Department of Consumer Affairs granted recognition to these Exchanges as
indicated below:National Multi-Commodity Exchange of India, Ahmedabad (NMCE), started
trading in November 2002 and the other two national Exchanges viz. Multi Commodity
Exchange of India Ltd., Mumbai (MCX) and National Commodity and Derivatives Exchange
Ltd., Mumbai (NCDEX) started trading in November 2003. The following table shows the
increase in volume and value of trading in commodity futures since the setting up of these
national Exchanges.

Commodity Futures Trading Value and Volume since 2001-02

2002-03 2003-04 2004-05 2005-06

Volume of
314.4 492.9 1,942.1 6,685.09
Trading (in lakh
(44.4)* (57.7)* (294)* (244)*
tonnes)

Value of
66,530 1,29,363 5,71,759 21,34,471
trading (Rs. in
(92.8)* (94.4)* (341.9)* (274)*
crore)
*Figures in parenthesis are % change over previous year.
 Benefits to industry from future trading:
 Hedging the price risk associated with future contractual commitments.
 Spaced out purchases possible rather than large cash purchased and its storage.
 Efficient price discovery prevents seasonal price volatility
 Greater flexibility, certainty and transparency in procuring commodities would
aid bank lending.
 Facilitate informal lending
 Hedged position of producers and processors would reduce the risk of default
faced by banks.
 Lending for agriculture sector would go up with greater transparency in pricing
and storage.
 Commodity exchanges to act as distribution network to retail agri-finance from
bank to rural households.
 Providing trading limit finance to traders in commodities exchanges.

Future prospect

Future prospect of commodity derivative trading is upbeat. Futures market size (both
commodities and securities) relative to Gross Domestic Product (GDP at current prices) in the
US is about 90%, in China about 85%, and in Brazil about 200%. Commodities derivatives trade
value relative to GDP (at current price) in India was 5.81 % in 2003-04, 20.14% in 2004-05 and
it has gone up to 66 % during 2005-06. The commodity futures trade has taken a big leap in the
past two years. Likely participation of Banks, Mutual Funds and Foreign Institutional Investors
along with introduction of options trading after amendments to FCR Act, 1952, will boost the
commodity futures trading further in the coming years.
 Meaning of commodities exchanges:

A Commodity Exchange is defined as a market where multiple buyers and sellers trade
commodity linked contracts on the basis of terms and conditions laid down by the
exchange(UNCTAD 2007).Since the commodity exchange provide a forum for trading
commodity linked contracts, they reduce the transaction cost associated with finding a buyer or
seller. Further, most importantly, the hedging and price discovery functions of future markets
promote more efficient production planning, storage, marketing, rationalization of transaction
cost and better margin for producers.

Its evolution in India:

 Commodity exchange in India
In India there are about 25 authorized commodities out of which Multi Commodity Exchange of
India Ltd (MCX), National Commodity & Derivatives Exchange Ltd (NCDEX) and National
Multi Commodity Exchange of India Ltd (NMCE) are the three big exchanges handling very
high proportion of volumes. Headquartered in Mumbai MCX, is promoted by SBI group and
many other financial institutions including the Financial Technologies (India) Ltd. MCX started
trading in November 2003 and has edge in non agricultural commodities. Another Mumbai based
NCDEX commenced operations on December 15, 2003. This commodity exchange was
promoted by national institutions such as NABARD, NSE, LIC and ICICI Bank Ltd. Etc. it is a
well managed online multi commodity exchange that has edge in agricultural commodities.
NMCE started its operation in November 26, 2002. It was supported by Central Warehousing
Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited.
As per the date released by Forward Market Commission (FMC), commodity exchanges in the
country recorded a total business of Rs 210,276 crore in futures segment during the first fifteen
days of 2008 which was 43% higher as compared to the same period last year. Out of it the
turnover of MCX stood at Rs 169572.92 crore, while the NCDEX clocked a turnover of Rs
32682.39 crore during the period and Ahmadabad-based NMCE registered a turnover of Rs
633.72 crore. Presently, about 90 agricultural commodities or their variants are traded in future
markets in India. Pepper (International), turmeric, gur, casterseed, hessian, jute, sacking, cotton,
potato, castor oil (international), soybean (oil and cake), kapas, palmolein, sugar and tea are the
important agricultural commodities traded in such markets

Leading commodity markets of India

The government has allowed national commodity exchanges, similar to the BSE & NSE
to come up and let them deal in commodity derivatives in an electronic trading
environment.
 Multi commodity exchange (MCX) located at Mumbai
 National commodity and derivatives exchange ltd (NCDEX) located at
Mumbai
 National multi commodity exchange (NMCE) located at Ahmadabad
 INDIAN COMMODITY EXCHANGES
MARKET SHARES

Other
regional NMCE
exchanges,
NMCE, 4%
3% Other regional
NCDEX,
exchanges
34%
MCX, 59% NCDEX

MCX
 About NCDEX

National Commodity & Derivatives Exchange Limited (NCDEX) is a

professionally managed on-line multi commodity exchange. The shareholders
of NCDEX comprises of large national level institutions, large public sector
bank and companies.

NCDEX is the only commodity exchange in the country promoted by national level institutions.
This unique parentage enables it to offer a bouquet of benefits, which are currently in short
supply in the commodity markets. The institutional promoters and shareholders of NCDEX are
prominent players in their respective fields and bring with them institutional building experience,
trust, nationwide reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act,
1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It commenced
its operations on December 15, 2003.

NCDEX is a nation-level, technology driven de-mutualised on-line commodity exchange with an

independent Board of Directors and professional management - both not having any vested
interest in commodity markets. It is committed to provide a world-class commodity exchange
platform for market participants to trade in a wide spectrum of commodity derivatives driven by
best global practices, professionalism and transparency.

NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various laws of

the land like the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act
and various other legislations.
NCDEX headquarters are located in Mumbai and offers facilities to its members from the centres
located throughout India.

The Exchange, as on May 21, 2009 when Wheat Contracts were re-launched on the Exchange
platform, offered contracts in 59 commodities - comprising 39 agricultural commodities, 5 base
metals, 6 precious metals, 4 energy, 3 polymers, 1 ferrous metal, and CER. The top 5
commodities, in terms of volume traded at the Exchange, were Rape/Mustard Seed, Gaur Seed,
Soyabean Seeds, Turmeric and Jeera.

Share Capital details as on December 31, 2009

Authorized Capital Rs. 70,00,00,000/-, comprising :

6,00,00,000 equity shares of Rs. 10/- each, aggregating Rs.

60,00,00,000/-

1,00,00,000 preference shares of Rs. 10/- each, aggregating

Rs. 10,00,00,000/-
Issued, Subscribed and Paid-up 3,00,00,000 equity shares of Rs. 10/- each, aggregating Rs.
Capital 30,00,00,000/-

1,00,00,000 preference shares of Rs. 10/- each, aggregating

Rs. 10,00,00,000
SHARE OF VARIOUS COMMODITIES ON NCDEX :-

Commodity groups 2004-05 2005-06 2006-07 2007-08

Bullion 1.8 7.79 21.29 26.24

Agriculture 3.9 11..92 13.17 9.41

Energy 0.02 1.82 2.31 5

Others 0 0.02 0.001 0

Total 5.72 21.55 36.77 40.65

Commodity wise trends in volume traded

Share Share Share

COMMODITY 2005 % 2006 % 2007 %
104557
SUGAR 206398 13.6 3 30.9 204261 22.6

CHANNA 144288 9.5 137372 4.1 87181 9.6

TUR 280935 18.5 635647 18.8 182363 20.1

 Sugar

At approximately twenty thousand B.C., people in the islands of the S. Pacific were the first to
find the sugar in the canes of sugar that grew naturally in their area. Anyhow, the country of
India was the 1st country to extract natural cane juice to make the first crude sugar. They called
it "gur",loosely translated as "sweet tasting", in five hundred B.C. From there, the knowledge of
making sugar spread toward the west, into the Arabic nations, and then to Europe by the
Crusaders.

For 100s of years, sugar was a highly valued and costly "spice" that was used only in the homes
of high society and royalty. Christopher Columbus took the cane to plant in the Caribbean,
leading to the blossoming of sugar in the New World. In the mid-1700's, a German scientist
developed an substitute to sugar, through the use of sugar beets. Since then, the sugar beet has
become the main source of sugar in Europe.

Sugar as a product

Sugar performs a array of functions in edible products, in addition to providing a sweet essence
and flavor. Sugar is used as a conservative, as is the case in jams and jellies, where sugar
reserves the growth of micro organisms. Sugar is used in baked goods, like cakes, to hold
moisture and prevent the staleness that we notice in these foods after time.. In canned fruit and
many vegetables, sugar enhances consistency and their colors. Sugar is also used to prevent large
ice crystals from forming in frozen sweet mixtures, like ice cream, and to support fermentation in
products containing yeast, such as bread. In these roles and others, sugar is an important and
versatile food ingredient.
Supply

There are two main types of sugar grown in the world: cane and beet. Both produce the
identical refined sugar product. Sugar cane is a bamboo-like grass grown in semi-topical
regions. It accounts for about 70% of world production. Beet sugar comes from the sugar beet
plant, which grows in temperate climates and accounts for the balance of world production.
Intemperate weather, disease, insects, soil quality and cultivation affect both cane and beet
production, as do trade agreements and price support programs.

India, Brazil, China, Thailand, Cuba and Mexico are among the leading sugar cane producers.
European Union nations, the Russian Federation and Ukraine produce the majority of all
sugar beets. The European Union, Brazil, Thailand, Australia, Cuba and Ukraine are leading
sugar exporters.

U.S. sugar cane is grown in Florida, Louisiana, Hawaii, Texas and Puerto Rico. Beet sugar is
grown in 14 states, with Minnesota, Idaho, North Dakota and California leading production.

The sugar industry closely monitors the level of sugar stocks relative to sugar consumption as
a measure of available supply. In the past, small changes in the ratio have led to large sugar
futures price movements in the opposite direction.
Demand

Industrialized nations account for most sugar consumption. The European Union, Russian
Federation, United States, China and Japan are among the worlds largest sugar importers.

An imbalance between world consumption and production in 1980 again sent sugar futures
prices skyward - from around 15 cents per pound at the beginning of the year to about 45
cents per pound in the fall. By 1982, however, sugar futures prices had fallen back to their
1977-79 range, averaging over 8 cents per pound for the year. Ample supplies and an evolving
geo-political scene have led to prices in the 2 cents/pound to 16 cents/pound range since then.

Beyond price, other factors influencing sugar demand include: refinery activity; consumer
income; candy and confectionery sales; changing eating habits; and sugars use in new
technologies, such as ethanol production for automobile fuel. Many South American countries
use sugar and corn based ethanol in their unleaded gasoline and diesel engines. An unexpected
increase in demand can lead to much higher sugar futures prices.

The Role of the Exchange

Since all sugar futures and options contracts are standardized (with delivery months and
locations, quantity and grade constant), only price is negotiable. These prices are determined
by "open outcry" trading on the exchange floor. With open outcry, all market participants are
afforded the opportunity to buy or sell at the best available current price.

All trading activity is closely monitored by the Exchange according to guidelines established
by the CFTC. The Exchange is committed to maintaining markets of the highest quality. To
help fulfill this self- regulatory mandate, the ICE employs advanced technological systems to
perform a variety of surveillance and compliance procedures.
Trading Sugar Options

In 1982, the CSCE introduced options on world (#11) sugar futures - the nation's first
exchange -traded option on commodity futures. Because options strategies are numerous and
can be tailored to meet a wide array of risk profiles, time horizons and cost considerations,
hedgers and investors have increasingly realized the vast potential of sugar futures options.

Buyers

Option buyers obtain the right, but not the obligation, to enter the underlying sugar futures
market at a predetermined price within a specific period of time. A "call" option confers the
right to buy (go long) sugar futures, while a "put" options confers the right to sell (go short)
sugar futures. The predetermined price is known as the "strike" or "exercised" price, and the
last day when an option may be exercised is the "expiration Date". Buyers pay sellers a
premium for their rights.

Because an option holder is under no obligation to enter the sugar futures market, losses are
limited to the premium paid. There are no margin calls. If the underlying sugar futures market
moves against an options position, the holder can simply let the option for the sugar futures
expire worthless. After all, the holder of an option to buy sugar at 13.00 cents per pound (call
option) probably won't be interested in exercising the option if the then-current market price is
10.00 cents per pound. On the other side, potential gains are unlimited, net of the premium
cost.

Being able to participate in the market at a known cost with essentially unlimited profit
potential has made the purchase of straight call and put options popular among sugar futures
investors. The same features allow hedgers to guard against adverse price movements at a
known cost without foregoing the benefits of favorable price movements. In an options hedge,
gains are only reduced by the premium paid - unlike a sugar futures hedge, where gains in the
cash market are more wholly offset by sugar futures market losses.
Option holders can exit their position in one of three ways: exercise the option and enter the
futures market; sell the options back in the market (at a profit or loss depending on the
difference between purchase and sell price); or let the option expire worthless.

Sellers

Option sellers, or "writers", receive a premium for granting option rights to buyers. In
exchange for the premium, writers assume the risk of being assigned a position opposite that
of the buyer in the underlying sugar futures market at any time prior to expiration. Writers of
call options must be prepared to assume short positions at the option's strike price at the
option holder's discretion, while put option writers may be assigned long sugar futures
positions.

Writing put and call options can serve as a source of additional income during relatively flat
market periods. Because option writers must be prepared to enter the sugar futures market at
any time upon exercise, they are required to maintain a margin account similar to that for
sugar futures positions. Sellers can offset their positions by buying back their options in the
market.

Strike Prices

Traders agree on premiums in an open outcry auction similar to that for sugar futures
contracts. The Exchange generally lists several strike prices for each option month: one at or
near the sugar futures price and a series above and below. As sugar futures prices rise or fall,
higher or lower strike prices are introduced according to a present formula.

Premiums

A number of factors impact premium levels in the market. Intrinsic value is the dollars and
cents difference between the option strike price and the current sugar futures price. An option
with intrinsic value has a strike price making it profitable to exercise and is said to be "in-the-
money" (strikes below futures price for calls, above for puts). An option not profitable to
exercise is "out-of-the-money" (strikes above sugar futures price for calls, below for puts).
"At-the-money" options have strike prices at or very near sugar futures prices. In general, an
option's premium is at least equal to intrinsic value (the amount by which it is "in-the-money")
"Time value" is the sum of money buyers are willing to pay for an option over and above any
intrinsic value the option may presently have. Time value reflects a buyer's anticipation that,
at some point prior to expiration, a change in the futures price will result in an increase in the
options value. The premium for an "out-of-the-money" option is entirely a reflection of its
time value.

Premiums are also affected by volatility in the underlying sugar futures market. Because high
levels of volatility increase the probability an option will become valuable to exercise, sellers
command larger premiums when markets are more volatile. Finally, premiums are affected by
supply and demand forces and interest rates relative to alternative investments.

Option Months

Regular options trade on sugar futures contracts having March, May, July and October
delivery periods as well as a January expiration option which is based upon the March sugar
futures contract. Serial options are short-life options contracts providing additional option
expirations on existing sugar futures contracts.

In general, the last trading day for sugar options is the second Friday of the month proceeding
the stated futures month.

Example: Buying a Sugar Call

Buying a call can be employed to profit from, or achieve protection against, an increase in the
price of sugar. Except for the cost of the option, the profit potential is similar to having a long
position in the underlying sugar futures contract. Moreover, this strategy may provide greater
"staying power" in the event of a temporary price setback than having an outright long sugar
futures position - there are no margin calls because one cannot lose more than the premium
paid for the option.
For example, assume that in August an investor expects sugar futures prices to increase by
late winter. With March futures trading at 12.00 cents/pound, the investor decides to purchase
a March 12.00 call (an at-the-money option) for 0.75 cents/pound. Since each contract
represents 112,000 pounds of sugar, the total premium paid is $840.

The maximum loss the holder of a long call can incur is the premium paid, regardless of how
far the underlying sugar futures prices fall. The potential profit is unlimited, however, since
the option holder gains dollar-for-dollar in the rise of the underlying sugar futures price minus
the cost of the premium. Out-of-the-money options do not gain dollar-for-dollar on the rise of
the sugar futures price.

Call options can be purchased for price protection as well as for the pursuit of trading profits.
Commercial firms buying call options effectively establish a maximum purchase cost equal to
the exercise price of the option plus the option premium. Employed in this way, options offer
hedgers price "insurance", while at the same time allowing them to benefit from price declines
since they can allow the option to expire unexercised.

Example: Buying a Sugar Put

Whereas buyers of calls can profit from rising prices, buyers of put options - rights to sell
sugar futures contracts at the option exercise price - can profit from price declines. Except for
this difference the properties of puts and calls are the same.

To realize a profit at expiration, the underlying sugar futures price must be below the option
exercise price by an amount greater than the premium paid for the option. If it is higher, a
portion or the entire premium will be lost. In no case, however, can losses exceed the
premium paid.

For example, the sugar futures investor in May expecting depressed sugar prices at autumn's
onset can purchase October puts. With October sugar futures trading at 12.00 cents/pound, the
investor purchases an October 12.00 put for 0.65 cent/pound (0.65 cent x 112,000 pounds =
total of $728/contract).
The sugar futures investor can lose no more than the premium paid, plus commissions and
fees no matter how high sugar futures prices climb. On the other hand, if prices decline, the
investor can realize substantial gains. A sugar futures sale at the strike price would have
similar profit opportunities in a falling market - plus the premium paid to obtain the option.
Losses from a short sugar futures position, however, would be unlimited in a rising market.

Commercial firms can purchase put options against inventory as "insurance" against price
decreases. The firm may choose the cost or "deductible" for the insurance by selecting either
in-the-money, at-the-money, or out-of the- money puts. For example, say an October 10.00
put would cost 0.08 cent/pound and an October 11.00 put cost 0.27 cent/pound
 Chana

Chana is considered one of the chief pulses; it carries great significance especially for Indian
market. Chana (chickpeas) is consumed in various forms. Major use of chana consist of making
flour- popularly known as ‘besan’, around 60% of total chana consumption is in the form of
besan. Around 15-20% of chana (chickpeas) is used for seeding purpose, and the balance is
consumed in raw form or used as chana dal. Fourth Quarter considered as prime months for
Besan consumption, as majority sweet consumption takes places during these month on account
of festive season.
Trading system NCDEX Trading System
Ticker symbol CHARJDDEL
Basis Desi ex-warehouse Delhi inclusive of all taxes and levies
Unit of trading 10 MT
Delivery Unit 10 MT
Quotation/Base Value Rs. Per Quintal
Tick size Re 1

Desi Chana
The material should be free of Mathara and Khesari and
live infestation
Foreign Matter (Other than Varietal
1% basis
admixture)
Green (Cotyledon colour), Immature,
3% basis
Shrunken, Shriveled Seeds
Brokens, Splits; 2% basis
3% basis (Weeviled
Damaged and Weeviled
2% max)
Moisture 10% basis
Varietal admixture 3% Max
Quality specification

Kantawalla Chana
The material should be free of Mathara and Khesari and
live infestation
Foreign Matter (Other than Varietal
1% basis
admixture)
Green (Cotyledon colour), Immature,
3% basis
Shrunken, Shriveled Seeds
Broken, Splits 3% basis
3% basis (Weeviled
Damaged and Weeviled
max 2%)
 Varietal admixture 3% Max
Quantity Variation +/-5%.
Desi Chana to be delivered at Delhi (up to the radius of 50
Delivery centre
kms from the municipal limits )
Chana was looking fundamentally very strong on the back of demand-supply scenario, but this
Kantawalla Chana to be delivered only at Indore (up to the
equation changed when Rajasthan Government
radius of 50 imposed
kms fromthethestock limit in
municipal pulses on 10th August
limits)
Also deliverable
2009. States like Punjab, Haryana and Maharashtra too followed the suit. Stock limit was mainly
Desi Chana can also be delivered at Bikaner (up to the
imposed due to soaring prices of pulses
radius(other
of 50 than
Kmschana), and therelimit)
from municipal was a huge pressure from
the Central Government to do so. As This
perdevelopment
directions ofled
the to a downside
Forward Marketstrigger in Chanafrom
Commission spot
timeoftoRs.
prices, and prices fell from the levels time, currently - to Rs. 2200/quintal within a month’s
2500/quintal
time.
HoursNCDEX August contract too Mondays
of Trading plunged till Rs. 2001/quintal
through whicha.m.
Fridays: 10:00 wastotrading at Rs 2450-
5:00 p.m.
2500/quintal during first week of Saturdays: 10.00 a.m. to 2.00 p.m.
August. Looking ahead The Exchange may vary the above timing with due notice.
Upon expiry of the contract all outstanding positions will
 If prices still continue to trade result
at Rs.in2200-
delivery.
2250/quintal levels, we expect a huge buying
Delivery specification The penalty structure for failure to meet delivery obligations
coming in Spot market especially fromwill the millers,
be as as demand
per circular for chana is expected to be double
no. NCDEX/TRADING-
during last quarter of the year, and 086/2008/216 dated September
moreover Rs 2200/quintal 16, 2008.
is a price which normally prevails
Delivery Logic Compulsory delivery
during the months of Feb-May as when the arrivals are at its peak in those months.
No. of active contracts As per launch calendar
Trading in any contract month will open on the 10th day of
 As it has started raining off lately,
thebut this monsoon has got nothing to do with fall or rise in
month.
Opening of contracts
If 10th
chana prices during the current phase, dayhave
people of thea month happens
tendency to be
to relate a non-trading
rainfall day,
with agricultural
contracts would open on the next trading day
crop, but current rainfall will impact on next year’s chana production and its price, as chana
20th day of the delivery month
being a rabi crop and its sowing begins during Dec-Jan
Due date/Expiry date If 20th happens to be a holiday, a Saturday or a Sunday then
the due date shall be the immediately preceding trading day
 We have witnessed a surge in prices
of thefor all the pulses
Exchange, whichexcept forthan
is other chana, thereby reducing the
a Saturday
probability of implementation of stock
Uponlimit in chana
the expiry of a by Madhya
contract Pradesh State
all outstanding Government.
open positions
Closing of contract
would result in compulsory delivery
This development make us believe that even though stock limit is implemented in chana and
prices fall further, these lower pricesDaily
would price
not fluctuation limitfor
be sustainable is a(+/-) 3%.period
longer If the as
trade hitswill
there thebe
prescribed daily price limit there will be a cooling off period
good demand from millers on account forof
15festive
minutes. Trade will be allowed during this cooling off
and marriage season coming ahead, period within
as demand forthe priceis band.
besan Thereafter
at its peak duringthe
theprice band
last quarter
Price band would be raised by another (+ / -) 1%.
If the price again hits the revised price band (4%) during the
 Current year’s production of kharif day,pulses
trade iswill only betoallowed
expected declinewithin the revised
by 30-40% due to price
below
band. No trade / order shall be permitted during the day
average rainfalls. Moreover if this current
beyond rainfall would
the revised hardly
limit of (+provide
/ -) 4% any relief to any of the
kharif pulses; as soon, the harvesting of kharif pulses
Member-wise: 40,000 will
MT forkickoff and anyor rainfall
all contracts during
15% of the
harvesting and pre harvesting seasonmarket-wide
will further open
hamperposition, whichever
the output as wellisthe
higher.
quality
Client-Wise : 10,000 MT

The above limits will not apply to bona fide hedgers. For
bona fide hedgers, the Exchange will, on a case to case
basis, decide the hedge limits. Please refer to Circular No.
NCDEX/TRADING-100/2005/219 dated October 20,2005
Position limits
 For near month contracts:
The following limits would be applicable from one month
prior to expiry date of a contract

Member: Maximum of 8,000 MT or 15% of the market-

wide near month open position, whichever is higher.
Client: Maximum of 2,000 MT
 Chana which we are importing currently
Quality is from Tanzania at 475$ (Roughly Rs.2375-
Premium/Discount
2400/quintal), this price doesn’t include the freight charges of Rs.180-220/quintal from port to
Desi Chana
mandis. So at mandis these chana will be introduced at price of Rs.2550-2600/quintal, which is
at premium of Rs. 250/quintal thanForeign
currentmatter
spot price, moreover the quality of chana that we
import from Tanzania are among theChana
inferior ones,
with as around
Foreign Matter78-82
morekgthan
of 1% acceptable but up
to 2%
Chana dal is extracted after processing 100maximum on and
kg of chana 1:1 discount which shall
it also contains beaapplied
dust to to
great extent,
such content above 1% rounded off to the higher 0.5%
whereas Indian Chana provides an output of around 84-86 kg chana dal after processing 100kgs
of Chana Green (Cotyledon colour), Immature, Shriveled Seeds

Chana with Green (Cotyledon colour), Immature, Shriveled

Seeds more than 3% acceptable but up to 4% maximum on
2:1 discount which shall be applied to such content above
Outlook
3% rounded off to the higher 0.5%

The outlook for Chana looks bullishChana

as thewith Green
current (Cotyledon
stock available colour), Immature,
in the country Shriveled
is around 16-17
Seeds more than 4% rejected
lakh tonnes and demand gainst is around 21-22 lakh tonnes for the remaining quarter and year.
Brokens,
This development states that we are Splits
well short of supply of around 4-5 lakh tonnes of chana.
Despite of government interventionChana
we feel over
with currentSplits
Brokens, quarter prices
more thanof2%
Chana may move
acceptable up.
but up
We recommend to go long in October to 3%Chana
on 2:1contract
discountbetween
which shall be applied to such
2250-2300/quintal in content
October
above 2% rounded off to the higher 0.5%
contract as such decline would not be sustainable for a longer period of time as fundamentals are
Chana
favoring bulls in the current scenario. withcontract
October Brokens, Splits
may more
touch than 3% rejected
Rs.2500/quintal

Moisture

Chana with Moisture more than 10% acceptable but up to

12% on 1:1 rebate which shall be applied to such content
above 10% rounded off to the higher 0.5%

Chana with Moisture more than 12% rejected

Damaged, Weeviled Seeds

Chana with Damaged, Weeviled Seeds more than 3% (with

Weeviled not more than 2%) acceptable but up to 10%
maximum (with Weeviled not more than 2% ) at a discount
of 2:1 which shall be applied to such content above 3%
rounded off to the higher 1%

Chana with Damaged, Weeviled Seeds more than 10%

rejected

Kantawalla Chana
Other deliverables at Premium/
Discount
Foreign matter
 Chana with Foreign matter more than 1% basis acceptable
up to 2% maximum on 1:1 discount which shall be applied
to such content above 1% rounded off to the higher 0.5%

Green (Cotyledon colour), Immature, Shriveled Seeds

ChanaTURMERIC
with Green (Cotyledon colour), Immature, Shriveled
Seeds more than 3% acceptable up to 4% maximum on 2:1
discount which shall be applied to such content above 3%
rounded
A yellow spice with a warm and mellow off to
flavor, the higher
turmeric 0.5% to ginger. Turmeric is used in
is related
prepared mustard and curry powder, and with
Chana it's aGreen
popular ingredientcolour),
(Cotyledon in Middle EasternShriveled
Immature, cooking.
Seeds more than 4% rejected
Turmeric is a spice derived from a Brokens,
rhizome (a type of root) native to India and Southeast Asia.
Splits
Turmeric was prized as a dye for centuries, thanks to its power to tint fabric--or food--a brilliant
Chana with Brokens, Splits more than 3% acceptable up to
yellow-gold. The dried, powdered rhizome is usedonin2:1
5% maximum curry powder,
discount some
which types
shall of pickles,
be applied and
to such
prepared mustard, and is used as acontent
naturalabove
food 3% rounded
coloring, in off to thefor
cheese, higher 0.5% Turmeric is
instance.
sometimes substituted for saffron (which
Chana is far Brokens,
with more expensive); butthan
Splits more aside
5%from their color, the
rejected
two spices have little in common. Turmeric's flavor has been described as peppery and somewhat
Moisture
bitter, so it's important to be judicious when adding this spice to foods.
Chana with Moisture more than 10% acceptable up to 12%
maximum on 1:1 rebate which shall be applied to such
content above 10% rounded off to the higher 0.5%
Top exporters
Chana with Moisture more than 12% rejected
• India (largest exporter of spices)
• Thailand and other SoutheastDamaged, Weeviled Seeds
Asian countries
• Various Pacific islands Chana with Damaged, Weeviled Seeds more than 3% (with
• Central and Latin American Weeviled
countries not more than 2%) acceptable but up to 10%
maximum (with Weeviled not more than 2% ) at a discount
• Taiwan of 2:1 which shall be applied to such content above 3%
rounded off to the higher 1%

Chana with Damaged, Weeviled Seeds more than 10%

rejected

Premium/Discount for Chana delivery at additional

delivery centers

The Premium and discount for different locations shall be

announced by the Exchange before launching of contract
In case of additional volatility, a special margin at such
percentage, as deemed fit, will be imposed in respect of
Special margins outstanding positions, which will remain in force as long as
the volatility exists, after which the special margin may be
relaxed.
Top importers

• Japan
• Sri Lanka
• Iran
• North African countries
• Middle Eastern countries
• Ethiopia
• United States
• United Kingdom

Major Trading Centres

• Nizamabad
• Dugirala in Andhra Pradesh
• Sangli in Maharashtra
• Salem
• Erode
• Dharmapuri
• Coimbatore in Tamil Nadu
Contract Futures Contract Specifications
Name of Commodity Turmeric
Ticker symbol TMCFGRNZM
Trading System NCDEX Trading System
Unpolished turmeric fingers Nizamabad quality ex
Basis
warehouse Nizamabad inclusive of Sales Tax/VAT
Unit of trading 10 MT
Delivery unit 10 MT
Quotation/base value Rs. per Quintal
Tick size Re. 1
Unpolished turmeric fingers of the current year with the
follow specifications as the basis

Unpolished turmeric fingers #

• Inferior quality Turmeric* should not be more than

1.5%
• Length
o Fingers that are broken/those less than 15mm
should not be more than 3.0%
o At least 75% of turmeric should be more than
3 cm in length
• Damage due to moisture (i.e. Lokhandi) or over
boiling (i.e. Kadh) should not be more than 1.2%
• Unboiled or less boiled turmeric should not be more
Quality specification
than 0.3%
• Bhusa, chaff dirt, earth clods and stones should not
be more than 0.75%
• Bulbs should not be more than 3%
• Moisture
o Basis 12%
o Allowed at 1:1 discount upto 13%
• Turmeric should be free from fungus
• Turmeric should not be artificially coloured with
dyes or chemicals

#Farmer polished turmeric will be treated as good for

delivery at 'on par' basis

* Chora/atthu finger, khota gatha, markha

Also Deliverable The following qualities will be acceptable at Exchange
specified premium/discount

Quantity variation
Delivery center
Additional delivery centres
Hours of Trading
Due Date/ Expiry Date
Delivery logic
Delivery Specification
Opening of Contracts
Closing of contract
No. of active contracts
Daily Price fluctuation limit
• Only farmer polished fingers will be acceptable in
case of Rajapore, Desi Cuddapah, Erode and Salem
qualities
• Farmer polished fingers/unpolished fingers will be
acceptable in the case of Duggirala and Warangal
qualities
+/- 2%
Nizamabad (up to the radius of 50 Km from the municipal
limits)
Sangli, Erode, Duggirala and Warangal (up to the radius of
50 Km from the municipal limits) with location wise
premium/discount as announced by the Exchange from time
to time
As per directions of the Forward Markets Commission from
time to time, currently:
Mondays through Fridays: 10:00 a. m. to 5:00 p.m.
Saturdays: 10.00 a.m. to 2.00 p.m.
The Exchange may change the above timing with due notice.
20th day of the delivery month
If 20th happens to be a holiday, a Saturday or a Sunday then
the due date shall be the immediately preceding trading day
of the Exchange, which is other than a Saturday.
Compulsory delivery
Upon expiry of the contract all outstanding positions will
result in delivery.
The penalty structure for failure to meet delivery obligations
will be as per circular no. NCDEX/TRADING-
086/2008/216 dated September 16, 2008.
Trading in any contract month will open on the 10th day of
the month. If 10th happens to be a non-trading day, contracts
would open on the next trading day
On the expiry of the contract, all the outstanding position
would have to be settled by physical delivery
As per Annexure.
Daily price limit will be 2%. If the price touches 2%, trading
will continue with 2% limit for the 15 minutes period from
 the time 2% limit was reached. Thereafter, price limit would
be extended by another (+)/ (-) 2 %. No trade would be
permitted during the day beyond the price limit of (+)/(-) 4%
from the previous day’s closing price
Member: 9,000 MT for all contracts or 15% of market wide
open position whichever is higher.
Client: 3,000 MT for all contracts

The above limits will not apply to bona fide hedgers. For
bona fide hedgers, the Exchange will, on a case to case
basis, decide the hedge limits
Position limits
For near month contracts:
The following limits would be applicable from 28 days prior
to expiry date of a contract
Member: Maximum of 1,800 MT or 15% of market wide
open interest in near month whichever is higher
Client: Maximum of 600 MT
In case of additional volatility, a special margin at such other
percentage, as deemed fit, will be imposed in respect of
Special margins outstanding positions, which will remain in force as long as
the volatility exists, after which the special margin may be
relaxed

Tolerance limit for outbound deliveries for all the contracts expiring in August 2007 and
therafter

Indian Scenario
 • India has 185.32 lakh hectares under turmeric cultivation with a total production of
701.66 lakh tonnes. Andhra Pradesh topped both in area and production with 73.93 lakh
hectares and 375.77 lakh tonnes respectively. Tamil Nadu follows with 33 lakh hectares
with 158.64 lakh tonnes (As per latest Statistics). Productivity was highest in Tamil Nadu
6118 Kg/ha.

• Turmeric is a seasonal product which is available in the market mainly in two seasons,
commencing in mid February to May and second season is mid August to October. .

• The important varieties used in India are: 'Alleppey Finger' (Kerala) and 'Erode and
Salem turmeric' (Tamil Nadu), 'Rajapore' and 'Sangli turmeric' (Maharashtra) and
'Nizamabad Bulb' (Andhra Pradesh). In Tamilnadu, the important varieties cultivated are
Erode local, BSR-1, PTS-10, Roma, Suguna, Sudarsana and Salem local. Among these
varieties, 70-75% is occupied by the local varieties. .

• Some of the important turmeric varieties exported from India are Allepey Finger
Turmeric, Rajapuri, Madras and Erode variety. The processed forms of turmeric exported
are dry turmeric, fresh turmeric, turmeric powder and oleoresin. · India in 2003-04 is
estimated to have exported 34500 tons of turmeric, valued at Rs. 127.5 crores. .

• United Arab Emirates (UAE) is the major importer accounting for 24.06 % of the total
exports followed by United States of America (USA) with 12.93 %. The other leading
importers are Japan, United Kingdom and Sri Lanka. The quality stipulation followed by
USA is considered to be more important for export of turmeric.

Global Scenario
• India is the largest producer, consumer and exporter of turmeric. .
 • Other producers in Asia include Bangladesh, Pakistan, Sri Lanka, Taiwan, China, Burma
(Myanmar), and Indonesia. Turmeric is also produced in the Caribbean and Latin
America: Jamaica, Haiti, Costa Rica, Peru, and Brazil. The use of the spice spread widely
in Oceania, but it is not used as a condiment in Melanesia and Polynesia..

• Major importers are the Middle East and North African countries, Iran, Japan and Sri
Lanka. These importing countries represent 75% of the turmeric world trade, and are
mostly supplied by the Asian producing countries..

• Europe and North America represent the remaining 15%, and are supplied by India and
Central and Latin American countries. Taiwan exports mostly to Japan. The United States
imports of turmeric come from India at 97%, and the rest is supplied by the islands of the
Pacific, and Thailand..

• The total yearly consumption of Turmeric all around the globe is approximately 38 Lakh
bags to 40 Lakh bags depending on the rates.

Uses of Turmeric

Turmeric is a member of the Curcuma botanical group, which is part of the ginger family of
herbs, the Zingiberaceae. The root and underground stem of the Curcuma longa L. plant is
crushed and powdered into ground Turmeric. Ground Turmeric is used worldwide as a
seasoning, to make curry, and for its medicinal properties. Curcumin, composing 3% of
Turmeric, is the herbs most biologically active phytochemical compound. It is extracted and
researched for its renowned range of therapeutic effects.

• Potent anticancer properties

• Reduces beta-amyloids which cause Alzheimer's disease
• Lowers cholesterol levels in kidney and liver tissue
• Potent antioxidant properties
• Helps protect against or lessen the degree of kidney lesions
• Increase the production of digestive fluids and reduce gas
• Protected against free radical damage
• Neutralizing of free radicals
• Possesses anti-inflammatory actions
• Increases catabolism of cholesterol into bile acids
• Possesses hypolipidemic action
• Reduces excess gas in the stomach and intestines
• Helps prevent oxidation of blood cholesterol
• Possesses anti-thrombotic activity
• Relieves pain and inflammation in mucosal tissue
• Acts as an anti-mutagenic and chemoprotective

Relationship between Spot prices and Futures trading

• Certainly, there is a relationship between the spot prices and future prices; future prices
are just an indication of a common opinion of the public at large on how the spot prices
 are going to behave in the future. Future prices are derivates of spot prices but not
independent of what is happening on the spot front.
• Spot prices are driven by current demand –supply conditions, and the high inflation today
is due to these imbalances. Futures trading provides valuable signals about expected
output for taking economic decisions. If the market believes that the crop would be sub-
optimal, prices would move up in the futures market, while if current stocks are in
abundance, then spot prices will remain low. As long as the market is efficient and not
being concerned ,which the exchange and regulation ensure, there would be a discipline
in the market.
• A significant correlation between spot and futures(notional)commodity indices as
maintained by MCX and NCDEX .The relationship, however is stronger in the case of
non-agro commodities and agro-commodities which are mostly commercial in nature
.Since the spot prices for agro-commodities vary widely across the regions and producers
even for the same crop, hedging effectiveness seems to be lower.

Relationship between futures trading and rise in prices of the agricultural

commodities
 Background

• Futures trading in most commodities were prohibited in India under the provisions of the
Forward Contract Regulation Act, 1952 since the early days of development planning.
While the prohibition was progressively lifted for many commodities in the post-
liberalization period, essential commodities like wheat, rice (non-basmati), pulses, edible
oils and sugar continued to remain outside its purview. It was in 2003 that the BJP led
NDA Government lifted all prohibition on futures trading and even allowed online
trading of essential commodities in newly established commodity exchanges.

• However, opposition to futures trading in essential commodities gathered momentum in

the backdrop of high inflation being experienced in the country since 2006, particularly
the sharp rise in prices of essential commodities. Besides the Left Parties, which have
consistently opposed futures trading in essential commodities, other political parties had
also started voicing similar demands.

ECFT Report

• This Expert Committee to Study the Impact of Futures Trading on Agricultural

Commodity Prices (ECFT), chaired by Planning Commission member Prof. Abhijit Sen,
has recently submitted its report to the Government. The main report, which has been
agreed upon by all the committee members, states: “current evidence available does not
provide any conclusive evidence about whether there is any causal relationship between
futures trading and rise in prices of the agricultural commodities”.
• However, it needs to be noted that the evidence collated and analyzed by the ECFT
report does not rule out the possibility of futures trading contributing to inflation.
• In Para 4.12 the report says: “Both monthly and weekly data show that the annual trend
growth rate in prices was higher in the post-futures period in 14 commodities, viz. Chana,
Pepper, Jeera, Urad, Chillies, Wheat, Sugar, Tur, Raw Cotton, Rubber, Cardamom,
 Maize, Raw Jute and Rice; and lower in 7 commodities, viz. Soy oil, Soy bean, Rape
seed/Mustard seed, Potato, Turmeric, Castor seed, and Gur..
• .The number of commodities in which inflation accelerated is double the number in
which this decelerated, and their weights are also much higher in both futures trading and
in the WPI. Also, significantly, all sensitive commodities (i.e. food grains and sugar)
recorded some acceleration in inflation after the start of futures trading.”
• But the report goes on to say in Para 4.13: “there is the problem that the period during
which futures markets have been in operation is much too short to discriminate
adequately between the effect of opening up futures markets and what might simply be
normal cyclical adjustments”. Thus, while the price rise of most agricultural commodities
in the post-futures trading period is clearly established, whether or how much futures
trading has caused or contributed to the price rise could not be conclusively ascertained.

Commodity Futures do affect Spot Prices(UNCTAD REPORT)

• In sharp variance to the findings of an expert panel set up by India, a UN agency says
futures trading in commodities affects spot prices of physical markets across the world,
calling for concerted regulatory action by governments.
Released worldwide Monday, the report by the United Nations Conference on Trade and
Development (Unctad) blames large financial investors for influencing commodity prices
through futures trading, without regards to the actual demand-
• Incidentally, a government panel headed by economist Abhijit Sen had said in a report
last year that there was no empirical evidence to suggest a link between futures trading
and rising prices in India.
• Unctad’s annual Trade and Development Report says commodities were being treated as
merely an asset class and futures trading in its current form held the power to shift prices,
irrespective of the supply-demand situation.
• “Individual market participants may take position changes that are so large relative to the
size of the market that they move prices, which can be called the weight-of-money
effect,” says the report.
• The UN agency, accordingly, calls for international collaboration among countries and
regulators to bring about a comprehensive framework to deal with excessive speculation
that has been blamed by several countries including India for the surge in food prices.
• “These last two years, there was no connection between real demand and supply situation
and the way commodity prices at exchanges went. This affects us all,” said professor
Jayanti Ghosh of the Jawaharlal Nehru University who unveiled the report here.
• “The investors can always move out to another country if they find regulations in one
country to be detrimental to their interest, what we need is collaborative action,” Ghosh
added.
• The Abhijit Sen committee had said in its report that negative sentiments had been
created in India by the decision to de-list futures trading in some important agricultural
commodities.
• Accordingly, the Forward Markets Commission, the watchdog, had said suspension of
futures trading in commodities
• Accordingly, the Forward Markets Commission, the watchdog, had said suspension of
futures trading in commodities would hinder the market’s development, apart from
negatively impacting on the confidence of stakeholders.
• The government, however, went ahead and banned futures trading in four commodities -
rice, wheat, urad dal and tur dal.
• Last year, soya oil, rubber and potato were added to the list but the notification was
allowed to lapse in December. Presently, futures trading is also banned in sugar till
December.
 Objectives of study

Primary objective: To know the impact of Commodity Futures Trading on Volatility of

Commodity spot prices.

Secondary objectives:

 To know the relationship between current spot prices and future prices.

 To know the reason of the relationship between current spot prices and future prices.

 To know the contribution of commodity future in causing rise in prices of food

commodities
 Theoretical Framework

CONSTRUCT: “To study the impact of commodity futures trading on volatility of commodity
spot price with special reference to Sugar,Chana &Turmeric on NCDEX.

VARIABLES: There are basically two types of Variables, as follows:

• Independent Variable
• Dependent Variable
The following are the variables of the study:

Independent Variable:
 Commodity future Prices

 Commodity future Traded Volume

 Commodity future Traded Value

Dependent variable:
 Commodity spot prices

 Commodity spot Traded volume

 Commodity spot Traded Value

Moderating variable:
 Stock Exchange Index i.e.NCDEX

 As per the construct, the basic aim of this study is to study the impact of commodity
futures trading on spot price of commodities traded on NCDEX.
LITERATURE SURVEY & REVIEW

Once the area of interest is selected then the researcher should undertake extensive literature
survey connected with the problem or the topic of interest.For this problem, the abstracting and
indexing journals and published or unpublished bibliographic are the first place to go to.
Academic journals, conference proceedings, government reports, books etc must be tapped
depending upon nature of problem.

Conceptual literature:-
Conceptual literature is that which relates with concepts and theories. Help from different books
should be taken for different concepts and theories.

Empirical literature:-
Empirical literature consists of study made by other in the same field. The published data in
newspapers books & magazines available for discussion with people of organization. Such as:
 Newspapers
 Journals
 Case Studies
 Websites
 Books
 Bulletins
Books:-
• Sharan V., “International Financial Management,” Prentice Hall Of India, New
Delhi,pp.386-403(5) This book will help me to learn about Forex Market Mechanism. On
the other hand this book will also enable me to learn facts about the Interest Rate Risk &
How does it deal in the currency future market.
• Miller W Thomas, “Derivatives,” Z. A Printers, Delhi,pp.87-112(6) This book contains a
lot of information regarding Derivatives but the best part I found is the mechanism of
future pricing in Derivative market, what various factors effect the pricing of the future
derivatives.
• Kothari C.R. ,“Research methodology methods & techniques”(7) : Knowledge about
research process, sample design, research design etc. The information regarding the
basics of research and research methodology, what are the different types of research
designs, problem statement, sampling, sampling methods and sampling techniques,
sources of data collection and methods of data collection are given in this section.
• Hair Joseph F., “Marketing research-within a changing information
environment”.3rd edition.TATA Mcgraw Hill Publishing Company ltd. New Delhi. Page
no. – 350-378. - Tell about what is a construct, how to develop it and basic concepts of
scale measurement and types of data collected in research practices. Apart it also tell
about basic level of scale i.e. 5 types of scales these are nominal. Ordinal, class interval,
and hybrid ordinally- interval and ratio scales. It also provides information about what is
a measurement and object. It tells about the construct operationalization. Ratio scale is
widely used because it not only identifies the absolute difference between each scale
point but also to make comparisons between responses.
• Cochran William G., “sampling technique”2006. of sample size, steps in determining
the sample size, the formula for n in sampling for proportions, the formula for n with
continues data, advance estimates of population variances, sample size more than one
item and sample size in decision problems. There are many formulas for determining
sample size Edition -3rd. Replika press Pvt.ltd India. Page no.72-85. Tell about estimation
which formula have to be used for determining sample size is different in different
studies which have to be used is estimated with these topics.
• Sekaran Uma , “research methods for business-a skill building approach”2006.
Edition-4th.Pashupati printers (p) ltd.page-174-185.It tells about measurement of
variables: operational definition and scales, how variables are measured, operational
definition: dimensions and elements, concept of achievement motivation,
operationalizing the concept of learning and elements of achievement motivation.
• Black Tathan “Multivariate data analysis”, edition –fifth, new delhi page no: 326-338:
It gives the information about the analysis of variance (ANOVA).what is ANOVA, basic
principle of ANOVA, ANOVA technique. One way ANOVA and two ways ANOVA. It
also tell about the Analysis of co-variance (ANOCOVA), why anocova and about the
anocova technique. It tell about applications of these i.e. where we’ve to apply these in
practical use.
• Krishnaswamy K.N., “management research methodology integration of
principles.methods and techniques”. Baba Bareka nath printers. Page no.-268-273.
Tell about types of scaling i.e. scale classification, methods of successive intervals,
quantitative judgment methods, scale construction techniques, judgment methods, factor
scales.
• Bryman Alan, “business research methods”2003, edition – 2nd. Oxford university
press, in India Gopsons papers ltd Noida. Page no.-179-205. Tell about steps in
conducting social survey, basic terms and concepts in sampling, sampling error, types of
probability sample, sample size, types of non probability sampling, and sources of error
in social survey research, error in survey research and sources of sampling and non
sampling error in a survey of the effect t of privatization.
• Churchill Gilbert A., “marketing research-methodological foundations”, Edition-
8th.Chennai Micro Print pvt.ltd. Page no. 373-397. It give the information about attitude
scaling procedures, self report attitude scales, which scale to use, how to construct a
scale, most important considerations when shopping for selected appliances.
• N.D.Vohra & B.R.Bagri “futures and option”, 2ndedition, 2008 V.K. (India) delhi.
Page no.233-240: tell about the basics of the future contracts and the features of Indian
commodity market. It depicts the information about the supply, demand of commodity
market and about captive market (agro products are produced and consumed locally),
 waiting for explode i.e. about the value of production and expected future market
potential value.
• Surendra S.Yadav ,P.K.Jain “foreign exchange markets”8, 2007 macmillan
publication delhi.. Page no.216-247: Tell about the future contracts used for commodity
markets. It tells about the standardization, future time expiry, dealing point (exchange),
standard time and standard quantity of commodities and about the actual delivery/square
offs of the contracts.
• Alan C.Shapiro “Multinational Financial Management”. Edition-4th, 2002, printice
hall of India private limited New Delhi. Page -478-492: tell about the commodity
market and their dealing and about the benefits of the future commodity trading. Apart
from this it also tell about the flexibility certainty, hedging the price risk associated with
future contractual commitments, trading limits to traders in commodity exchanges,
hedged position of producers and processors and reduction of the default risk faced by
banks.
• S.S Yadav “commodity market operations”. 2nd edition, 2005, vidya publications New
Delhi.Page no.214-230: It provides information about commodity shares in Indian
derivatives market. It also provides information about the operations performed by
commodity markets and their fluctuations in the prices. It also tells about that the share of
commodity derivative market is increasing day by day as compare to the stock futures
and index futures. The value is 72% in 2007-08.this is the highest value till now.
• J.N.Dhankhar, “The Indian commodity-Derivatives Market in Operation”, Edition
2005, Skylark Publications, New Delhi. Page no.144-153,183-193: I’ve taken the
meaning of commodity and commodity exchange and the features of present commodity
exchanges. It also tells about the basics of commodity future market and provides
knowledge about the operations of the same. It also tells about settlement of traders i.e.
about the both systems-cash and delivery mechanism. Also tell about important players-
Hedgers, Speculators, arbitrageurs and about the sale tax and registration procedure, how
to start the trading in the commodity futures.
• J Coakes Sheridan “SPSS Version 13.0 for Windows – analysis without anguish”
Wikely student edition, Saras Graphics, Noida: it gives the information about each and
 every tools for analyzing the data by using the software SPSS. It is used to conclude
about whether the study is significant or not.
Redhead Keith, Financial derivatives: An introduction to futures, forwards Eastern
economy edition(14):- It tells me about the reasons of rising derivative, introduction of future,
meaning of future, meaning of forward, difference between forward &future.
• Tucker Alan L “Financial futures, Options and Swaps”(15) :- Economies importance of
future, application of future contract, meaning of future, types of future, history of
swap, future classification, initial margin, mark to marking margin.

Black Tathan “Multivariate Data Analysis”, edition –fifth, New Delhi,

pp.326-338(12)
It gives the information about the analysis of variance (ANOVA).what is ANOVA, basic
principle of ANOVA, ANOVA technique. One way ANOVA and two ways ANOVA. It
also tell about the Analysis of co-variance (ANOCOVA), why anocova and about the
anocova technique. It tell about applications of these i.e. where we’ve to apply these in
practical use
JOURNALS:
• Chartered and financial analyst 2008,13 commodity future trading”-page no.-58-62:
It tell about the benefits of future trading like distribution network, transparency in
procuring commodities, cash purchase and its storage
• Economic and political weekly Jan 2008, page no. 18-23 –Impact of future trading
on commodity prices: This article attempts to explore the effect of introduction of future
trading on the spot prices.
• Journal of finance, (2006) the price effect of future introduction”- page no.487-498:
It tells about the MCX market share among national commodity exchanges
• Economic and political weekly Aug 2008, page no. 35-42 – Expert committee on
commodity futures: Agreements and disagreements. This article attempts to explore
the effect of futures trading in India on price volatility.
• Global business review elasticities of commodity group using time-series data covering
the 50 year period.
• Chartered and financial analyst 2007, Special issue- commodity futures-a future tool
for Indian banks.”- It provides the information about the turnover in financial markets
and commodity market. It also tells about the relationship between equity and commodity
future market. It also shows the percentage to GDP contribution of different segments
like government security market, Forex market, NSE and BSE and of commodity market
also. Apart it also tell about the comparison of price volatility of various commodities
traded on MCX and NSE Nifty Index.
• Journal of financial economies vol-10- different shares of different commodity
markets-page no.61-78: It provides the information about the Indian commodity
exchanges market shares. It shows that MCX has a share of 59%, NCDEX has a share of
34%, NMCE has a share of 4% and other regional exchanges have a share of 4% in all. It
also provides information about future market and stock return volatility. So it shows that
MCX has more share in all.
• Journal of future market, vol-26 page no.185-196: It revealed the information about
structure of commodity market. It also shows the participants in commodity market like
NCDEX, MCX, and NMCE. These come under the national exchange and in the regional
exchange NBOT and other 20 exchanges are included.
• Journal of commodity participants Association of India, Vol-1: It provides the
detailed information about the participants of different exchanges along with their
turnover. This also shows that in 2005 the maximum turnover was of the NCDEX
(Mumbai) but in 2006 the maximum turnover was of the MCX (Mumbai) and also in the
2007. This journal of commodity participants association informed us about the various
members of organization and the working of various exchanges.
• Reserve bank of India (RBI) Bulletin (Jul 2008) – India’s BOP development during
4th quarter of 2007-08 (i.e. Jan-march 2008) and April-march 2007-08, page no.-
1143-1161: It tell about the balance of payment development during Jan-march
2008,merchandise trade, trade deficit, invisible account that is receipts and payments,
invisible that is current account deficit, key components of invisible receipts that is
software, non software services, private transfers, capital account, reconciliation of
import data, detail of business services, movement in current account balance, quarterly
movement in trade balance from April-June 2003 to Jan-march 2008 and details of
private transfer to India.
• Finance India , Dec.08, Vol. XXIII, No. 4,pp.1355-1367(24) “ Does The Introduction Of
Derivatives Affect The Underlying Return Volatility?” By Wejda Ochi In this Study, an
empirical analysis of the relation between the future market & the Euro spot market is
presented. Two aspects of this relation has been analysed , the effect can be on volatility
due to introduction of of derivatives in India & interaction between level of exchange on
the futures market & variability on the returns.
• Indian Journal Of Finance, April 2009, Vol.III,pp.28-35(23) “Currency Future Trading
In India” By K.S. Jaiswal In this study, various aspects of commodity future in India has
been covered from the introduction to different advantages & to the critical analysis. As
well as the future prospects of commodity future in India.
• Finance India , Dec.08, Vol. XXIII, No. 4,pp.1355-1367(24) “ Does The Introduction Of
Derivatives Affect The Underlying Return Volatility?” By Wejda Ochi In this Study, an
empirical analysis of the relation between the future market & the Euro spot market is
presented. Two aspects of this relation has been analysed , the effect can be on volatility
due to introduction of of derivatives in india & interaction between level of exchange on
the futures market & variability on the returns.
WEBSITES:
• http//www.papers.ssrn.com/sol3/delievery…/SSRN ID1428685
code1291830.pdf?...

There are some research paper available regarding Future Derivative

India.

• http//www.docstoc.com/docs/10235684/Indian-Derivative This will

enable me to learn me about the Recent Trend in Derivative market.

• http://ncdex.com/ This will enable me to learn about the

commodities traded on the exchange.

• www.bis.org/review/r080903e.pdf

This will tell about review of commodity future India.

• http//www.iief.com/research/chapio.pdf

This will enable me to look upon the legal framework & regulation of
derivative India.

• http//www.mcxindia.com/cds/faqs.asp

This will help me to learn about Trading of commodity future on mcx &
it’s turnover

• http//www.ftkmc.com/pdf/Benefits-Of-launching commodity Future-in –

India.pdf

This helps me to learn about the reasons due to which commodity

futures are launched in India..
RESEARCH METHODOLOGY(11,12)

Research methodology is a way to systematically solve the problem. It is a game plan for
conducting research. In this we describe various steps that are taken by the researcher,
“All progress is born of inquiry. Doubt is often better than overconfidence, for it leads to
inquiry and inquiry leads to invention.”
Research in a common parlance is a search for knowledge. Research is an art of scientific and
systematic investition. Thus research comprises defining and redefining problems, formulating
hypothesis or suggested solutions; collecting, organizing and evaluating data, making deductions
and reaching conclusions. Research methodology is the arrangement of condition for collection
and analysis of data in a manner that aims to combine relevance to the research purpose with
economy in procedure. Research Methodology is the conceptual structure within which research
is conducted. It constitutes the blueprint for the collection measurement and analysis of the data.
Research methodology is a framework for the study and is used as a guide in collecting and
analyzing the data. It is a strategy specifying which approach will be used for gathering and
analyzing the data. it also includes time and cost budget since most studies are done under these
two constraints. The research methodology include over all research design, the sampling
procedure, the data collection method and analysis procedure.3
Issues regarding research are:
 To gain familiarity with the phenomenon or to achieve new insight into it.
 To portray accurately the characteristics of a particular individual, situation or group.
 To determine the frequency with which something occur.4
SIGNIFICANCE OF RESEARCH
 Research provides the basis for all government policies in our economic system.
 It has its special significance in solving various operational and planning issues of
business and industry.
 For professional in research methodology, research may mean a source of live hood.

RESEARCH DESIGN
This part contains relevant information pertaining to research design and methodology used in
the research project. The research design has been distinctive described to the objective of the
study.
There are three types of research design that are used frequently used by the various researchers.
These are:
 Exploratory research
 Descriptive research
 Causal research
THE RESEARCH PROCESS(11)

1
OBSERVATION
Broad area of
research interest
identified

4
3 THEORETICAL 5
7
PROBLEM 6
FRAMEWORK DATA
DEFINITION GENERATION SCIENTIFIC
COLLECTION,
Research OF RESEARCH
ANALYSIS AND
Problem Variables clearly HYPOTHESES DESIGN
INTERPRETATION
Delineated identified and
labelled

8
DEDUCTION
2 Hypotheses
PRELIMINARY substantiated?
DATA Research
GATHERING question
Interviewing answered?
Literature Survey NO Yes

11
10 Manager
9 ial
Report
Report decision
Presentat
writing making
ion
1. COLLECTION OF DATA:-
Both the primary & secondary data has been collected from the market & company. The
company provided the secondary data & primary data is collected through the medium of face-
to-face interaction & interview from various persons in the enterprise.

2. ORGANISATION OF DATA:
Data once collected the further processing is done, the data collected by me are carefully done
through in a useful & relevant manner &properly organized.

3. PRESENTATION OF DATA:-
The data collection is of no use unless & until it is given in the presentable form. Thus after
proper organization the data is given in presentable form with the complete details, with the help
of bar diagram, pie carts etc.

4. ANALYSIS OF DATA:-

The data is carefully analyzed keeping in the consideration both the pros & cons for the purpose
of arriving at concrete conclusion.

5. INTERPRETATION OF DATA:-
After carefully analyzed the data, it has been aptly interpreted in order to give concrete
conclusion & proper recommendation.
RESEARCH DESIGN(11)

Research design involves a series of rational decision making benefits at each point from such
sophisticated design to ensure accuracy, confidence and commensurate with large investment of
resources.

PURPOSE OF STUDY:

 Exploratory
 Descriptive
 Hypothesis testing

The purpose of my study is descriptive. A descriptive study is undertaken in order to ascertain be

able to describe the characteristics of variables of interest in a situation.
It is also hypothesis testing also. Because studies that engage in hypothesis testing usually
explain the nature of certain relationship or establish the difference among groups or
independence of the two or more factors in the situation.
EXTENT OF RESEARCHER INTERFERENCE IN STUDY(11,12)

 Minimal: studying events as they normally occurs

 Manipulation and/or control and/or simulation
The extent of research interference in my study will be minimal. I’ve to just collect and analyze
the data for findings. There will be no need for simulation tests etc.

MEASUREMENTS AND MEASURES(15)

 Operational definition
 Items (measures)
 Scaling
 Categorization
 Coding

Measurements and measures for my study will be scaling that is interval scaling.
UNITS OF ANALYSIS (POPULATION TO BE STUDIED)(16)
 Individuals
 Dyads
 Groups
 Organization
 Machines etc.

The units of analysis or the population that will be studied in my research will be forex prices
and values of Currency Future .

SAMPLING DESIGN(10)
It is a definite plan for obtaining a sample from sampling frame. It is determined before
collection of data.

Sampling size for my study will be of 15 Months. In other words sampling size will be more than
350 values as studies is to be done on daily basis.

TYPES OF INVESTIGATION(11)
• CAUSAL STUDY
• CORRELATIONAL STUDY
A Researcher should determine whether a Causal & Correlational Study to find an Answer to
the issue at hand. The former is done when it is necessary to establish Cause-Effect Relationship.
However, if all that the researcher wants is mere the identification of the important factors
“associated with the problem then, then Correlational study.
In this study, Correlational Study is to be done, because I am interested in delineating the
important associated variables.
STUDY SETTING(11)
• CONTRIVED
• NONCONTRIVED
As We know that Research can be done in the natural environment where work proceeds
normally or in artificial settings.
“A Contrived Setting with researcher interference to an excessive degree.”
Whereas, A Noncontrived Setting with researcher interference with minimal degree or
moderate extent.
In this Study, the study setting will be Contrived Setting due to high degree of interference of
researcher & influences by a no. of variables.

TIME HORIZON(11)

• CROSS-SECTIONAL STUDIES
• LONGITUDINAL STUDIES

A study can be done in which data are gathered just once, perhaps a period of days or weeks or
month, in order to answer a research question. Such studies are called one shot or Cross-
Sectional Studies.
On the other hand, when the researcher tries to collect Data at more than one point of time it is
known as longitudinal studies.
Here, in this study Cross-Sectional Design is to be used as data for study will be gathered just
once.
SAMPLING AND SAMPLING DESIGN(14)

A sampling design is a definite plan for obtaining a sample from a given population. While
selecting a sampling design, one must ensure that the procedure causes a relatively small
sampling error and helps to control the bias in a better way.
The sampling procedure followed is as follows:
1. Identification of the Universe :
The universe to be studied is finite and includes the industries
2. Defining a Sampling unit :
Here the sampling unit is an industrial unit (small, medium or large) where the industrial units
are classified as small, medium and large on the basis of their annual turnover
3. Determining the size of the sample :
Taking into consideration the size of the sample, the population variance , cost involved and the
requirements of efficiency, representative ness , reliability, flexibility, and the parameters of
interest in the research
4.Sampling procedure:
The sampling design used is Probability Sampling (Simple Random Sampling Without
Replacement ).The use of this sampling design is due to the fact that it follows the Principle of
Statistical Regularity which states that if on an average, the sample chosen is a random one, the
sample will have the same composition and characteristics as that of the universe. Moreover,
with probability sampling, we can measure the errors of estimation which brings out the
superiority of random sampling design over the other ones.
DATA COLLECTION(9)

Secondary data: It is the data, which has already collected by some organization for some
purpose or research study. The data for my study has been collected from various. Secondary
data means that data that are already available i.e. refers to data which has already been collected
and analyzed by someone else. The sources used in this case are-

1. Books
2. Journals
3. Magazines
4. Internet sources
5. Newspapers

DATA COLLECTION METHOD(9)

 Primary data
 Secondary data
 Interviewing
 Questionnaires
 Observations
 Unobtrusive methods.
My data collection is based on secondary data i.e. from websites, books, prowess etc.
DATA ANALYSIS(9)

 Feel for data

 Goodness of data
 Hypothesis testing

For data analysis mostly the hypothesis testing will be used. By using spss software it will be
performed. Statistical tools will also be used. Analytical tools will also be used.
HYPOTHESIS TESTING(11)

H0: There is not any significant impact of commodity future trading prices, volume & value on
commodity spot prices of sugar.
H1: There is significant impact of commodity future trading prices, volume & value on
commodity spot prices of sugar

H0: There is not any significant impact of commodity future trading prices, volume & value on
commodity spot prices of Channa.
H1: There is a significant impact of commodity future trading prices, volume & value on
commodity spot prices of Channa

H0: There is not any significant impact of commodity future trading prices, volume & value on
commodity spot prices of Turmeric.
H1: There is a significant impact of commodity future trading prices, volume & value on
commodity spot prices of Turmeric.
 GARCH MODEL
The positive correlation between volumes and volatility found for most of the exchange is
unlikely to be a reflection of changes in the number of traders active in these markets. These
changes appear rather to have occurred in the last 2009, when banks increasingly moved into
emerging markets, and after the recession, when the sharp fall in turnover was accompanied by a
significant decline in the number of traders. A more plausible explanation for the positive
correlation between turnover and volatility is that both variables are driven by the arrival of new
information.
To test this hypothesis, I split volatility and trading volumes into expected and unexpected
components. I use estimates from a GARCH(1,1) model to describe expected volatility. This
model appears to fit the time series well. Ideally, volatility implied in option prices could be
used, since there is evidence that it outperforms GARCH models in providing forecasts of future
volatility.
However, future contracts for currencies of emerging market countries are not very liquid.
The GARCH(1,1) model can be written as:
Following a practice common in the literature, the GARCH model is fitted on the entire time
series, thus yielding in sample forecasts.
where Rt is the return, its mean and ht its conditional variance at time t.

Why use GARCH:

GARCH modeling builds on advances in the understanding and modeling volatility in

the last decade. It takes into consideration excess kurtosis (i.e. fat tail behavior) and

volatility clustering, two important characteristics of financial time series. It provides

accurate forecasts of variances and co-variances of asset return through its ability to

model time varying conditional variances. As a consequence you can apply GARCH

model to such diverse field such as risk management, portfolio management and asset
allocation, opinion pricing, foreign exchange and term structure of interest rates.

You can find highly significant GARCH effects in equity market not only for individual

stocks but for stock portfolio and equity future.

GARCH ON SUGAR SPOT PRICES FROM JAN 2009 TO DEC

2009

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-12-
10
time: 11:58
Included observations: 464
Convergence achieved after 31 iterations

Coefficie Std. z-
nt Error Statistic Prob.

5054.33 0.17999 0.8571

Omega 909.7603 3 6 56
3.20043 2.03E- 0.9999
alpha_1 6.5E-05 1 05 84
3.25195 0.27811 0.7809
beta_1 0.904424 6 7 23

Log Likelihood -2625.31

3.36E-
Jarque Bera 43.62834 Prob 10
Ljung-Box 339.1585 Prob 0
INTERPRETATION
. In the above tables the values of omega is very high which shows that degree of variation is
high in sugar spot price, & alpha also have high value which shows that the risk level is high in
sugar trade. Volatility of crude price shows that sugar has been high fluctuative in the past
year.which is not good for the Indian economy..
Verification of sugar pridiction

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-17-
10
time: 15:11
Included observations: 45
Convergence achieved after 32 iterations

Coefficie Std. z-
nt Error Statistic Prob.

685883. 1.44E- 0.99998

Omega 9.863551 2 05 9
239.497 0.99999
alpha_1 0.000287 4 1.2E-06 9
250.559 0.00397 0.99682
beta_1 0.996356 1 7 7

Log Likelihood -254.898

0.26268
Jarque Bera 2.673574 Prob 8
0.96765
Ljung-Box 0.001644 Prob 9
INTERPRETATION
the above graph shows that what the prediction has produce by the old data is true to see the
trend line of the new data of sugar prices

GARCH ON CHANA PRICES FROM JAN 2009 TO DEC 2009

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-17-10
time: 15:02
Included observations: 503
Convergence achieved after 7 iterations

Std. z-
Coefficient Error Statistic Prob.

omega 7623.36 9330265 0.000817 0.999348

alpha_1 0.023638 69.21263 0.000342 0.999728
beta_1 0.968659 69.98129 0.013842 0.988956

Log Likelihood -4137.95

Jarque Bera 37.95282 Prob 5.74E-09
Ljung-Box 0.15228 Prob 0.696366
INTERPRETATION
In the above graph the values alpha is low which indicats there is less risk in chana trading..
Volatility of chana price shows that gold has been less fluctuative in the past year.
Verification of CHANA pridiction

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-17-10
time: 15:05
Included observations: 51
Convergence achieved after 39 iterations

z-
Coefficient Std. Error Statistic Prob.

omega 450.0008 4.26E+08 1.06E-06 0.999999

alpha_1 3.95E-05 568.6453 6.94E-08 1
beta_1 0.997566 606.1444 0.001646 0.998687

Log Likelihood -422.439

Jarque Bera 1.706567 Prob 0.426014
Ljung-Box 6.18E-06 Prob 0.998016

INTERPRETATION
the above graph shows that what the prediction has produce by the old data is true to see the
trend line of the new data of chana spot prices
GARCH ON DOLLAR TURMERIC FROM JAN 2009 TO DEC
2009

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-12-10
time: 12:05
Included observations: 516
Convergence achieved after 25 iterations

Std. z-
Coefficient Error Statistic Prob.

omega 19.05934 32330.4 0.00059 0.99953

alpha_1 0.000639 15.3587 4.16E-05 0.999967
beta_1 0.962579 1.552985 0.619825 0.535373

Log Likelihood -2698.15

Jarque Bera 28913.36 Prob 0
Ljung-Box 15.41039 Prob 8.65E-05
INTERPRETATION
the above graph shows that what the prediction has produce by the old data is true to see the
trend line of the new data of turmeric spot price
Verification of TURMERIC pridiction

GARCH(1,1) estimation of y

Method: ML - BFGS with analytical gradient

date: 03-17-10
time: 15:10
Included observations: 50
Convergence achieved after 17 iterations

Std. z-
Coefficient Error Statistic Prob.

omega 0.122977 5413649 2.27E-08 1

alpha_1 0.002256 4182.109 5.39E-07 1
beta_1 0.997005 3571.222 0.000279 0.999777

Log Likelihood -258.091

Jarque Bera 1.186283 Prob 0.552589
Ljung-Box 7.91E-06 Prob 0.997756
INTERPRETATION
In the above graph the values alpha is low which indicats there is less risk in turmeric trading..
Volatility of gold price shows that turmeric has been less fluctuative in the past year.

Granger causality
Granger causality test is a technique for determining whether one time series is useful in
forecasting another Ordinarily, regressions reflect "mere" correlations, but Clive Granger, who
won a Nobel Prize in Economics, argued that there is an interpretation of a set of tests as
revealing something about causality.

A time series X is said to Granger-cause Y if it can be shown, usually through a series of F-tests
on lagged values of X (and with lagged values of Y also known), that those X values provide
statistically significant information about future values of Y.

The test works by first doing a regression of ΔY on lagged values of ΔY. Once the appropriate lag
interval for Y is proved significant (t-stat or p-value), subsequent regressions for lagged levels of
ΔX are performed and added to the regression provided that they 1) are significant in and of
themselves and 2) add explanatory power to the model. This can be repeated for multiple ΔXs
(with each ΔX being tested independently of other ΔXs, but in conjunction with the proven lag
level of ΔY). More than one lag level of a variable can be included in the final regression model,
provided it is statistically significant and provides explanatory power.

The researcher is often looking for a clear story, such as X granger-causes Y but not the other
way around. In practice, however results are often hard-to-interpret. For instance no variable

granger-causes the other, or that each of the two variables granger-causes the second.

Why we use granger

Granger casuality test is an statistical tool which use f-test to know the cause and effect relation
ship between the two time series. With the help of this test we can find the right direction o f the
study.

Granger casuality on sugar spot and future prices

Pairwise Granger Causality Tests

Date: 04/04/10 Time: 10:54
Sample: 1 24
Lags: 2
Null Hypothesis: Obs F-Statistic Probability
RFUTURE does not Granger Cause 21 0.45517 0.64230
RSPOT
RSPOT does not Granger Cause RFUTURE 0.42835 0.65884

INTERPRETATION
As the significant level is 5% and from the above table calculated value are more than 5% so the
null hypothesis is rejected and alternate hypothesis is accepted .so we can conclude that sugar
future price has significant impact on spot price and vice-versa.
.

Granger casuality on chana spot and future prices

Pairwise Granger Causality Tests
Date: 04/04/10 Time: 10:59
Sample: 1 24
Lags: 2
Null Hypothesis: Obs F-Statistic Probability
RFUTURE does not Granger Cause 21 0.24116 0.78852
RSPOT
RSPOT does not Granger Cause RFUTURE 2.95541 0.08085

INTERPRETATION
As the significant level is 5% and from the above table calculated value are more than 5% so the
null hypothesis is rejected and alternate hypothesis is accepted .so we can conclude that chana
future price has significant impact on spot price and vice-versa.

Granger casulity on usdollar and money supply

Pairwise Granger Causality Tests

Date: 04/04/10 Time: 11:02
Sample: 1 24
Lags: 2
Null Hypothesis: Obs F-Statistic Probability
RFUTURE does not Granger Cause 21 3.48090 0.05558
RSPOT
RSPOT does not Granger Cause RFUTURE 0.27732 0.76138

INTERPRETATION
As the significant level is 5% and from the above table calculated value are more than 5% so the
null hypothesis is rejected and alternate hypothesis is accepted .so we can conclude that turmeric
future price has significant impact on spot price and vice-versa.
 STATISTICAL TOOLS:

Regression
Regression is the study of the nature of relationship between the variables so that one may be
able to predict the unknown value of one variable for a known value of another value.
“It is the measure of average relationship between two or more variables”.

Types of regression analysis:-

Simple and multiple regression: - In case of simple regression, we study only two variables
i.e. one dependent and one independent. But in case of multiple regression we take more than
two variables i.e. one dependent and other independent.
Linear and Non-linear regression: - When one variable changes with another variable in some
fixed ratio, it is called as linear regression. But if this ratio is not constant, it is known as Non-
linear regression.
Partial and Total regression: - If from more than two variables only two variables are taken
into consideration. It is called as partial regression. But all variables are taken into consideration
at a single slank. It is called as total regression

REGRESSION
HYPOTHESIS TESTING

H0: There is not any significant impact of commodity future trading prices on commodity spot
prices of sugar.
H1: There is significant impact of commodity future trading prices on commodity spot prices of
sugar
VARIABLES:
Dep. Sugar spot Prices
Indep. Sugar future prices
Sugar future volume
Sugar future value
 Model Summaryb

Adjusted R Std. Error of the

Model R R Square Square Estimate Durbin-Watson

1 .639a .408 .402 223.56239 .162

a. Predictors: (Constant), sfutval, sfutprice, sfutvol

b. Dependent Variable: ssptprice

INTERPRETATION: From the R-Square value (model summary table) we can say that about
40% of sugar
spot price is predicted with the help of sugar future price, volume and value.
H0: There is not any significant impact of commodity future trading prices on commodity spot
prices of Channa.
H1: There is significant impact of commodity future trading prices on commodity spot prices of
Channa.
VARIABLES:
Dep. Channa spot Prices
Indep. Channa future prices
Channa future volume
Channa future value

Model Summaryb

Adjusted R Std. Error of the

Model R R Square Square Estimate Durbin-Watson

1 .484a .235 .227 78.41028 .095

a. Predictors: (Constant), cfutval, cfutprice, cfutvol

b. Dependent Variable: csptprice

INTERPRETATION: From the R-Square value (model summary table) we can say that about
25% of Channa spot price is predicted with the help of channa future price, volume and value.
H0: There is not any significant impact of commodity future trading prices on commodity spot
prices of Turmeric.
H1: There is significant impact of commodity future trading prices on commodity spot prices of
Turmeric.
VARIABLES:
Dep. Turmeric spot Prices
Indep. Turmeric future prices
Turmeric future volume
Turmeric future value

Model Summaryc

Adjusted R Std. Error of the

Model R R Square Square Estimate Durbin-Watson

1 .912b .832 .828 856.46699 .526

a. Predictors: (Constant),, tfutvol, tfutprice, tfutval

c. Dependent Variable: tsptprice

INTERPRETATION: From the R-Square value (model summary table) we can say that about
80% of Turmeric spot price is predicted with the help of Turmeric future price, volume and
value.
CO-RRELATION

The correlation analysis refers to the techniques used in meaning the closeness of the
relationship between the variables. These two variables are:-
1. Static
2. Dynamic
Thus whenever two variables are so related that a change in the value of one is
accompanied by a change in the value of other, in such a way that an increase or decrease
in one variable is accompanied by an increase or decrease in the other, then the variable
are said to be correlated.

DEFINITION
“Correlation is an analysis of the co-variation between two or more variables”
A. M. Tuttle
“The effect of correlation is to reduce the range of uncertainty of one’s prediction”
Tippett
TYPES OF CORRELATION
Correlation is classified in several different ways. Three of the most important ways are:-

 Positive and Negative Correlation: When two variable X and Y move in same
direction is Positive Correlation and when both variables move in opposite direction
that is Negative Correlation.
 Simple, Partial and Multiple Correlations: When we study the relationship
between two variables only that is Simple Correlation. When three or more variables
are taken but relationship between any two of the variable is studied, assuming other
variables as constant that is Partial Correlation and when we study the relationship
among three or more variables that is Multiple Correlation.
 Linear and Curvi-Linear Correlation: when the ratio of change of two variables X
and Y remains constant throughout, then they are said to be Linear Correlated and
when the ratio of change between the two variables is not constant but changing, then
 correlation is said to be Curvi-Linear.

DEGREE OF CORRELATION:-

Sr. No. Degree of Positive Negative

correlation
1 Perfect correlation +1 -1
2 High Degree of Between +.75 Between -.75 to-1
correlation to+1
3 Moderate Degree of Between +.25 Between -.25
Correlation to+.75 to-.75
4 Low Degree of Between 0 to+.25 Between 0 to-.25
Correlation
5 Absence of 0 0
Correlation

CORRELATION

Correlation between sugar spot prices and sugar future prices:

Correlations

sfutprice ssptprice

Sfutprice Pearson Correlation 1 .258**

Sig. (1-tailed) .000

N 270 270

ssptprice Pearson Correlation .258** 1

Sig. (1-tailed) .000

N 270 388

**. Correlation is significant at the 0.01 level (1-tailed).

INTERPRETATION: As the value of pearson coefficient of correlation is +ve. This signifies

that there is a significant correlation between sugar spot prices and sugar future prices
Correlation between Channa spot prices and Channa future prices
 Correlations

cfutprice csptprice

Cfutprice Pearson Correlation 1 .548**

Sig. (1-tailed) .000

N 441 441

csptprice Pearson Correlation .548** 1

Sig. (1-tailed) .000

N 441 770

**. Correlation is significant at the 0.01 level (1-tailed).

INTERPRETATION: As the value of pearson coefficient of correlation is +ve. This signifies

that there is a significant correlation between channa spot prices and channa future prices.

Correlation between Turmeric spot prices and Turmeric future prices

Correlations

tfutprice tsptprice

Tfutprice Pearson Correlation 1 .838**

Sig. (1-tailed) .000

N 243 243

Tsptprice Pearson Correlation .838** 1

Sig. (1-tailed) .000

N 243 506

**. Correlation is significant at the 0.01 level (1-tailed).

INTERPRETATION: As the value of pearson coefficient of correlation is +ve. This signifies

that there is a significant correlation between turmeric spot prices and turmeric future prices.
 Reliability

Reliability analysis is an engineering discipline that applies various mathematical techniques to

the measurement and prediction of the reliability of components and systems. The components
under study may be mechanical, electronic, software, or other types. "Systems" could include
anything from computers to rail transit. Measurements include failure rates, cumulative failures,
and component lifetimes (time until failure). A variety of techniques are employed, drawn
mainly from probability, statistics, and the theory of stochastic processes

Scale: ALL VARIABLES

Dep. Spot price, spot volume, spot value
Indep. Future price, future volume, future value

Reliability Statistics

Cronbach's
Alpha N of Items

.749 21

INTERPRETATION: As the value of Cronbach alpha comes out +ve 0.749.This

signifies that the data taken for the study is the reliable data.

RESULTS AND FINDINGS

POLICY IMPLICATIONS
RECOMMENDATIONS
 BIBLIOGRAPHY
Books:-
1. Sharan V., “International Financial Management,” Prentice Hall Of India, New
Delhi,pp.386-403
2. Miller W Thomas, “Derivatives,” Z. A Printers, Delhi,pp.87-112
3. Kothari C.R. ,“Research methodology methods & techniques
4. Hair Joseph F., “Marketing research-within a changing information
environment”.3rd edition.TATA Mcgraw Hill Publishing Company ltd. New Delhi. Page
no. – 350-378
5. Cochran William G., “sampling technique”2006
6. Sekaran Uma , “research methods for business-a skill building approach”2006.
Edition-4th.Pashupati printers (p) ltd.page-174-185.
7. Black Tathan “Multivariate data analysis”, edition –fifth, new delhi page no: 326-338
8. Krishnaswamy K.N., “management research methodology integration of
principles.methods and techniques”. Baba Bareka nath printers. Page no.-268-273.
9. Bryman Alan, “business research methods”2003, edition – 2nd. Oxford university
press, in India Gopsons papers ltd Noida. Page no.-179-205.
10. Churchill Gilbert A., “marketing research-methodological foundations”, Edition-
8th.Chennai Micro Print pvt.ltd. Page no. 373-397
11. N.D.Vohra & B.R.Bagri “futures and option”, 2ndedition, 2008 V.K. (India) delhi.
Page no.233-240
12. Surendra S.Yadav ,P.K.Jain “foreign exchange markets”8, 2007 macmillan
publication delhi.. Page no.216-247
13. Alan C.Shapiro “Multinational Financial Management”. Edition-4th, 2002, printice
hall of India private limited New Delhi. Page -478-492
14. S.S Yadav “commodity market operations”. 2nd edition, 2005, vidya publications New
Delhi.Page no.214-230
15. J.N.Dhankhar, “The Indian commodity-Derivatives Market in Operation”, Edition
2005, Skylark Publications, New Delhi. Page no.144-153,183-193
16. J Coakes Sheridan “SPSS Version 13.0 for Windows – analysis without anguish”
Wikely student edition, Saras Graphics, Noida
17.Redhead Keith, Financial derivatives: An introduction to futures,
forwards Eastern economy edition

18. Tucker Alan L “Financial futures, Options and Swaps”

19.Black Tathan “Multivariate Data Analysis”, edition –fifth, New Delhi,

a. pp.326-338(12)

20. It gives the information about the analysis of variance (ANOVA).what is ANOVA,
basic principle of ANOVA, ANOVA technique. One way ANOVA and two ways
ANOVA. It also tell about the Analysis of co-variance (ANOCOVA), why anocova
and about the anocova technique. It tell about applications of these i.e. where we’ve
to apply these in practical use
 JOURNALS:
21. Chartered and financial analyst 2008,13 commodity future trading”-page no.-58-62:
22. Economic and political weekly Jan 2008, page no. 18-23 –Impact of future trading
on commodity prices
23. Journal of finance, (2006) the price effect of future introduction”- page no.487-498:
24. Economic and political weekly Aug 2008, page no. 35-42 – Expert committee on
commodity futures: Agreements and disagreements
25. Global business review elasticities of commodity group using time-series data covering
the 50 year period.
26. Chartered and financial analyst 2007, Special issue- commodity futures-a future tool
for Indian banks
27. Journal of financial economies vol-10- different shares of different commodity
markets-page no.61-78
28. Journal of future market, vol-26 page no.185-196
29. Journal of commodity participants Association of India, Vol-1
30. Reserve bank of India (RBI) Bulletin (Jul 2008) – India’s BOP development during
4th quarter of 2007-08 (i.e. Jan-march 2008) and April-march 2007-08, page no.-
1143-1161
31. Finance India , Dec.08, Vol. XXIII, No. 4,pp.1355-1367(24) “ Does The Introduction Of
Derivatives Affect The Underlying Return Volatility?” By Wejda Ochi
32. Indian Journal Of Finance, April 2009, Vol.III,pp.28-35(23) “Currency Future Trading
In India” By K.S.
33. Finance India , Dec.08, Vol. XXIII, No. 4,pp.1355-1367(24) “ Does The Introduction Of
Derivatives Affect The Underlying Return Volatility?” By Wejda
 WEBSITES:

34.http//www.papers.ssrn.com/sol3/delievery…/SSRN ID1428685
code1291830.pdf?...

i. There are some research paper available regarding Future

Derivative India.

35.http//www.docstoc.com/docs/10235684/Indian-Derivative This will enable me

to learn me about the Recent Trend in Derivative market.

36. http://ncdex.com/ This will enable me to learn about the commodities

traded on the exchange.

37. www.bis.org/review/r080903e.pdf

i. This will tell about review of commodity future India.

38.http//www.iief.com/research/chapio.pdf

i. This will enable me to look upon the legal framework &

regulation of derivative India.

39.http//www.mcxindia.com/cds/faqs.asp

i. This will help me to learn about Trading of commodity future on

mcx & it’s turnover

40.http//www.ftkmc.com/pdf/Benefits-Of-launching commodity Future-in –

India.pdf

i. This helps me to learn about the reasons due to which

commodity futures are launched in India..