History of Commodity Derivatives Market in India

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How does the commodity derivative ecosystem help farmers according to the passage?

It enables farmers to hold back their stock for sale at a later date based on futures prices (correct)

It connects farmers directly with consumers, eliminating the need for intermediaries

It allows farmers to sell their produce immediately at higher prices

It provides farmers with subsidies and financial assistance to cultivate their crops

What is the primary purpose of the commodity derivative ecosystem according to the passage?

To provide a platform for transparent price discovery of agricultural commodities (correct)

To help the government and private sector plan for timely imports and exports to prevent shortages and price spikes

To help farmers get better prices from intermediaries in physical markets

To enable farmers to hold on to their crops for longer periods through pledge financing and warehousing

What is the role of the commodity derivative ecosystem in ensuring availability of adequate supplies and preventing sudden price spikes?

It encourages farmers to store their crops in government-run warehouses at subsidized rates

It helps the government and private sector plan for timely imports and exports based on price signals (correct)

It allows the government to impose price controls on agricultural commodities

It provides direct subsidies to farmers to increase production

How does the commodity derivative ecosystem help exporters and importers according to the passage?

It enables them to hedge their positions against commitments made for export or import Signup and view all the answers

What is the role of the commodity derivative ecosystem in protecting producers against unremunerative prices?

It helps exporters and importers plan their activities based on the early price signals from the futures market Signup and view all the answers

How does the commodity derivative ecosystem indirectly help farmers get better prices from intermediaries in physical markets?

It creates a more transparent and competitive environment in the physical markets, thereby forcing intermediaries to offer better prices Signup and view all the answers

What is the primary purpose of a futures contract?

To transfer the risk of price fluctuations from the buyer to the seller Signup and view all the answers

What is the key difference between a long futures position and a short futures position?

In a long position, the trader profits when prices rise, while in a short position, the trader profits when prices fall Signup and view all the answers

What is the primary purpose of an option contract?

To give the buyer the right, but not the obligation, to buy or sell the underlying commodity Signup and view all the answers

What is the key difference between a call option and a put option?

A call option gives the buyer the right to buy the underlying commodity, while a put option gives the buyer the right to sell the underlying commodity Signup and view all the answers

What is the purpose of the 'strike price' in an option contract?

It is the price at which the option buyer has the right, but not the obligation, to buy or sell the underlying commodity Signup and view all the answers

What is the primary function of the 'option premium' in an option contract?

It is the price that the option buyer pays to the option seller for owning the right to buy or sell the underlying commodity Signup and view all the answers

What is the primary driver of economic buy/sell decisions when it comes to commodities?

Price Signup and view all the answers

Which century saw the existence of forward agreements related to rice markets in Japan?

17th Century Signup and view all the answers

Why was the CBOT (Chicago Board of Trade) established?

To mitigate credit (default) risk Signup and view all the answers

What factor contributed to disputes and violent clashes in the Chicago grain markets before the establishment of the CBOT?

Credit (default) risk Signup and view all the answers

Why are agricultural commodities different from non-agricultural commodities like metals and energy products?

Their production and supply are seasonal Signup and view all the answers

Which of the following statements is true regarding forward contracts?

Forward contracts can only be settled with physical delivery of the commodity. Signup and view all the answers

Which of the following is a key difference between forward contracts and futures contracts?

Futures contracts are highly standardized, while forward contracts are not. Signup and view all the answers

If a holder of a futures contract decides to hold the position until maturity (expiry), which of the following is true?

The holder must physically give or take delivery of the underlying asset, depending on the settlement type. Signup and view all the answers

Which of the following statements is true about futures contracts?

Futures contracts have strict specifications to facilitate fair price discovery. Signup and view all the answers

Which of the following statements is incorrect regarding forward contracts?

Forward contracts are highly standardized in terms of quality, quantity, and delivery date. Signup and view all the answers

Which of the following regulatory bodies oversees futures contracts?

SEBI (Securities and Exchange Board of India) Signup and view all the answers

What does a Put Option in commodities provide to farmers?

The choice to sell produce at a pre-decided price on the exchange platform Signup and view all the answers

What is the primary advantage of Farmer Producer Organizations (FPOs) for small and marginal farmers?

Benefit from economies of scale and enhanced bargaining power Signup and view all the answers

How does aggregation through Farmer Producer Organizations (FPOs) help small farmers?

By enabling them to benefit from economies of scale Signup and view all the answers

What distinguishes Farmer Producer Organizations (FPOs) as legal entities?

Their recognition as hybrid entities between private companies and cooperative societies Signup and view all the answers

Why are small farmers often unable to benefit fully from market opportunities in the Indian agricultural sector?

As they have limited volume individually and face a long chain of intermediaries Signup and view all the answers

How do Put Options differ from Call Options in commodities trading for farmers?

Put Options provide the right to sell commodities, while Call Options provide the right to buy. Signup and view all the answers