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Contents
Introduction Derivatives Derivatives existing in India: Financial Derivative - Commodity Derivatives Indian derivatives Market..Looking Ahead Trading Instruments: Forward Contract Futures Contract Options

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- Swaps Participants In Derivatives Market Hedgers Speculators

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- Arbitragers Trading Of Commodity Derivatives In India Exchange Trading - Over the counter Commodity Markets Global Perspective - Indian perspective Company Profile - ANAGRAM STOCKBROKING LIMITED Project Profile: Commodity for the study Objective & limitation of study Research methodology

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- Analysis and Interpretation of the data Suggestions and Recommendations Bibliography

INTRODUCTION

Commodities futures trading in India have a long history. The first commodity futures market appeared In 1875. But the new standardized form of trading in the Indian capital market is an attractive package fort all the people who earn money through speculation buy trading in to FUTURES. it is a well-known fact And should be remembered that the trading in commodities through futures exchange is mealy, old wine in a new bottle The trading in commodities was started with the first transaction that took place between two individuals. We can relate this to the ancient method of trading i.e., BARTER SYSTEM. This method faced a initial hiccups due to the problem like store of value, medium of exchange, differed payment, measures of wealth etc. this led to the invention of money. As the market started to expand, the problem of scarcity piled up. The farmers/ traders then felt the need to protect them selves from the fluxions in the price for their produce. In the ancient times the commodities traded were the agricultural produce, which was exposed to higher risk i.e., the natural calamities and had to face the price uncertainty. It was certain that during the scarcity, the farmer, realized higher prices and during the over supply he had loose his profitability. On the pother hand the trader had to pay higher prices during the scarcity and vice versa. it was at this time that both joined the hands and entered into a contract for the trade i.e., delivery of the produce after the harvest , for a price decided earlier . by this both had reduced the future uncertainty.

One stone still remained unturned- surety of honoring the contract on part from either of the parties, this problem was settled in the year 1848, when a group of Traders in Chicago came forward to standardize the trading. They initiated the concept of to-arrive contract and permitted the farmers to lock in the price upfront and deliver the grain at a contracted date later. This trading was carried on a platform called CHICAGO BOARD OF TRADE, one of the most popular commodities trading exchanges today. It was this time that the trading in commodity futures picked up and never looked back. Although in the 19 the century only agricultural produce was traded as a futures contract, but now the commodities of global or at least domestic importance are being traded over the commodity futures exchange this form of trading has proved useful as a device for HEDGIMNG AND speculation. The commodities that are traded today are: Agro-based commodities wheat, corn, cotton, oil, oilseeds etc. Soft commodities coffee, cocoa, sugar etc Live stock live cattle, pork belies etc Energy crude oil, natural gas, gasoline etc Precious metals gold, silver, platinum etc Other metals nickel, aluminum, copper, etc

Derivatives market Introduction

The derivative is a product whose value is derived from the values of one or more variables/ underlying assets called bases in a contractual manner. They have no value of their own but derive it from the underplaying asset that is being dealt with under the derivative contract. Thus derivative contracts acquire their values from the spot prices of the assets that are covered by the contract. The primary purpose of a derivative contract is to transfer risk from one party to an other they have established themselves a so irreplaceable tools to hedge against risks in the market. The underplaying asset can be equity, forex, commodity or any other asset. The emergence of the market for derivative product , most notably forwards , futures and options can be traced back to the willingness of the risk-averse economies agents to guard themselves against the uncertainties resulting out of the flections in the underlying assets prices. It is because of this nature, that , the markets (financial/commodities) are marked with a higher degree of volatility through the uses of derivative products. The risk of the prices can be transferred fully or partially by, locking-in the asset price in the form of futures or forwards. As an instrument of risk management, these do not influence the flucations in the prices of the underlying asset. Infract, by locking-in the asset prices, on the profitability and cash flow of the investors. The Indian derivatives market has a history of more than a century, but is still in a nascent stage vis--vis the global derivatives market. Today we have an active derivatives market in the segment of stock and foreign currency, while that trading the commodities is just standardized. The OTC derivatives in India are well established and the Indian capital market in at a pace to climb up a contact bought by paying an upfront margin is calculated as value added risk (VAR) basis. Which traces the volatility in the underlying assets (stocks or commodities) prices to arrive at margin that is reflected of volatility. Stock futures are linear and are absolutely similar to simple stocks i.e., ideally if the stock goes up and payoff.

DERAVATIVES EXISTING IN INDIA

Financial derivatives

The term derivatives refer to a large number of financial instruments whose value is derived from the underlying assets. Derivative instruments like the options and futures facilitate the trading in financial contracts. The most important underlying instruments in the market are in the form of equity, treasury bills, and foreign exchange. The trading in the the financial derivatives has attracted the prominent players of the equity markets. The primary purpose of a derivative contract is to transfer risk from one party to another i.e. risk is transferred from one party that wants to get rid in to another party i.e. willing to take it. The major players seen in the derivatives segment are the SPECULATORS whose sole objective is to buy and sell; for a profit alone. The HEDGERS are the other breeds of players, who aim merely to have a hedge positions. They are risk free investors whose intention is to have a safety mechanism and wish to protect their portfolio. Nevertheless, they are purchased as a cheap and efficient way of moving risk within the economic system. But the world of derivatives is riddled with jargons making it more awesome The trading in equity through the derivatives in India was introduced in the year 2000 by the securities and exchange board of India (SEBI) and this was described as the Indias derivative explosion. Although this took a definite form in 2000but the idea was initiated in the year 1995. it was then in the year 2000that sebi permitted the trading the in the options on platforms of Indias premier exchange platforms i.e.,the national stock exchange (NSE)and the Bombay stock exchange (BSE)in the individuals securities . but the futures contracts took 17 long months to get launched on November 092001

the trading in options and futures in the individual stocks were permitted to trade on the stable stocks only. The small and volatile stocks were an exemption from the trade in

derivatives. Futures and options are important tools that help investors to derive profit. The futures and options are import6ant tools that help the investors to derive profit. The futures facilities the investor to enter into a contract to deliver the underlying security at a future date whereas, the options aloe it to his discretion as to whether he wants to buy (call)or sell(put)the contract. The current trading behavior in the derivatives segment reveals that single stock futures continues to account for a sizable proportion. A recent report indicates that the trading in the individual stock futures in the Indian exchange has reached global volumes. One possible reason for such a behavior of the trader could be that futures closely resemble the erstwhile BADLA system.

Commodity derivatives

Commodity market is an important constant of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities lake a palm oil , oil etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge there commodity risk take speculative positions in commodities and exploit it arbitrage upon opportunities in the market. The need for a futures market in the commodities, especially, ,in the primary commodities viz emphasized because such a market not only provides amply opportunities for effective management of price risk but also assists inefficient discovery of price3s which can serve as a reference for the trade in the physical commodities in both the external as well as the internal market India, a commodity based economy where two-third of the one billion population depend s agricultural commodities, surprisingly has an underdeveloped commodity market. Unlike physical market features market trade in commodity are largely used as risk management (hedging) mechanism on physical commodities it self are open position in commodity stock. There was an effort to revive these markets but all went in vain due t improper infrastructure and facilities. How ever, after India joined the world trade organization the need to protect the agriculture community ageist the price fluctuations cropped up . the national agriculture polo icy 2000 was formulated and proposed to expand the coverage of future market to minimize the volatility in the commodity p[rice and hedging risk arising out of the flections in the prices. As a result of these there is a standardized form of commodity future trading in the country ,today and a lot number of people are active in the commodities exchanges taking it to a greatly high The active players in these exchanges are traders, speculators and the hedgers. it is said that now-a days the prices of the commodities in the physical market(mandis) is derived in accordance to the spot prices of the commodity exchange.

Indian derivatives market looking a head

Clearly, in the nascent stage , the derivatives market in India is heading in the right direction. In the terms of the number of contracts in a single commodity / stocks it is probably the largest market globally . it is no longer a marke3t that can be ignored by any of the serious participants. The Indian economy , now, is at verge of greater expansion the any other economies in the globe today. This has attracted a large number of institutional investors, both the Indian has w2ell as foreign , to invest in to Indian stock and commodities , their by bringing in a large of forex reserves. As predicted by the popular investment Gurus and the great economist world wide, India will be a major players in the global economy by this end of this decade. We can conclude that, with the institutional PARTICIPATION set to increase and a boarder product rollout inevitable , the market can only widen and depend further

Trading instruments:

Derivatives in the recent times have become very popular because of their wide application. Before getting into the hard talks about the commodities trade, let us know about the trading instrument in the derivatives, as they are similarly applicable to the commodities derivatives. There are 4 types of derivatives instruments forward contracts future contract Options Swap Futures and options are actively used in many exchanges whereas, forward and Swaps are mostly trade Over The Counter FORWARDS CONTRACTS: A spot or cash market is the most commonly used for trading; a majority of our day-today transactions are in the cash market. In addition to the cash purchase, another way trading is by entering into a forward contract. A forward contract is an agreement to buy or sell an asset on a specified date of specifi8ed price. These contracts are usually entered between a financial institutional and its corporate clients or two financial institutions themselves. In the context to the commodity trading, prior to the standardization the trade was carried out as a forward contract between the associations, producers and traders. Where the association used to act as counter for the trade. A forward contract has been in existence in the organized commodities exchanges for quite sometimes. The first forward contract portably started in Japan in the early 18th century, while the establishment of the CHICAGO BOARD OF TRADE in 1848 led to the start of a formal commodities exchange in the USA

Forward contracts are very useful in HEDGING and SPECULATION. The essential idea of entering into the forward contract is to hedge the price thereto avoid the price risk. By entering into a forward contract one is assured of the price at which the goods/assets are bought and sold. The classic hedging example would be that of an exporter who expects to receive payment in foreign currency after three months. A s he is exposed to greater amount of risk in the fluctuations in the exchange rate he can with the use of forwards lock in the rate today and reduce the uncertainty. Similarly, if a speculator has the information of a an upswing in the prices of the asset, he can go long on the forward market instead of the cash market and book the profit when the target price is achieved. The forward contract is settled at the maturity date. The holder of the short position delivers the assets to holder of the long position on the maturity against a cash payment that equals to the delivery price any the buyer. The price agreed in the forwards contract is the DILIVERY PRICE since the delivery priced is chosen at the time of entering into the contract, the value of the contract becomes zero to both the parties and costs nothing to either the holder of the long position or the holder of the short position. The salient features of forwards contract are: it is a bilateral contract and hence is exposed to counter party risk Every contract is unique and is custom designed in the terms of expiration date and the asset type and quality. The contract price is not a available in the public domain. On the expiration, the contract is to be settled by the delivery of the asset Of the party wishes to reverse the contract, he has to go to the same counterparty, which may result attract some charges..

FUTURES CONTRACT: Financial futures represent the most significant financial innovations of the last twenty years. By MERTON MILLER The father of financial derivatives is Leo Me lamed, the first exchange that traded in the financial derivatives was INTERNATIONAL MONETARY MARKET. wing of the Chicago Mercantile Exchange, Chicago, in the year 1972. The futures market was designed to solve the pro9bles, existing in the forwards market. A financial future is an agreement between two parties to by or sells a standard quantity of specified good asset on a future date at an agreed price. Accordingly, future contracts are promises, the person who initially sells the contract promises to deliver a specified underlying asset to a designed delivery point during a certain month, called delivery month. The underlying asset could, well be a commodity, stock market index individual stock, currency, interest rates etc. the party to the contract who determines to pay a price for the goods is assumed to take a long position, while the other who aggress to sell is assumed to be taking a short position. The futures contracts are standardized in the terms of Quantity of the underlying assets. Quality of the underlying assets. Date and month of the delivery Units of the price quotations and minimum price change, Location of the settlement

It is due to the standardization that the futures contract has an edge with the forward contract, in the terms of Liquidity, safety and the security to honoring the contract which is otherwise no secured in an OTC trading forwards contract. In short, futures contract is an exchange traded version of the usual forward contract. There is however, significant difference between the two and the same can be appreciated from the above discussion. Benefits to Industry from Futures trading: Hedging the price risk associated with futures contractual commitments Spaced out purchases possible rather than large cash purchases an its storage Efficient price discovery prevents seasonal price volatility Greater flexibility certainty and transparency in procuring commodities would aid bank lending Facilitate informed lending Hedged positions of producers and processors would reduces the risk of default faced by banks Lending for agriculture sector would to up with greater transparency in pricing and storage Commodity Exchange to act a s distribution network to retail agri-finance from Banks to rural households Provide trading limit finance to Traders in commodities Exchange

OPTIONS CONTRACTS; Options have existed over a long period but were traded over the counter only. These contracts are fundamentally different from that of futures and forwards. In the recent years options have become fundamental to the working of global capital markets. They are traded on a wide variety of underlying assets on both, the exchanges and OTC. Options like the futures are also available on many traditional products such as equities, stock indices commodities and foreign exchange interest rates etc, options are used as a derivate instrument only in financial capital market in India and not in commodity derivatives. It is in the process in introduction. Options, like futures also speculative in nature, Options is a legal contract which, facilitate the holder of the contract, the right but not the obligations to buy or sell the underlying asset at the fixed rate on a futures date. It should be highlighted that unlike that the futures and forward contract that options gives the buyer of the contract, the right to enter into a contract and he doesnt have to necessarily exercise the right to give delivery. When a contract is made the buyer has to pay some money as a premium to the seller to acquire such a right Options are basically of two types. call options put options Call options: A call options give s the buyer the right to buy the underlying asset at a strike price specified in the option. The profit /loss depends on the expiration date of the contract if the spot price exceeds the strike price the holder of the contract books a profit and viceversa. Higher the spot price more is the profit.

Options: Put options give the buyer the right to sell the underlying asset at the strike price specified in the options. The profit/loss that the buyer makes on the option depends on the spot spice of the underlying asset. It the spot price is below the strike price he makes profit and vice-versa. If the spot price is higher than the strike price he will wait up to the expiry or else book the profit early. SWAPS Swaps were developed as a long-term price risk management instrument available on the over the counter market. Swaps are private agreements between two parties to exchange cash flows in the future according to a pre-arranged formula. These agreements are used to manage risk in the financial markets and exploit the available opportunity for arbitrage in the capital market. A swap generically, is an exchange in the financial parlance it refers to an exchange of a series of cash flows against another series of cash flows. Swaps are also used in the asset/liability management to obtain cost effective financing and to generate higher risk adjusted returns. With swaps producers can effectively fix look in the prices they receive over the medium to long term and consumers can fist the price they have to pay. No delivery of the asset is involved the mechanism of swaps in purely financial.

The swaps market originated in the late 1970s when simultaneous loans were arrange between British and the US entities to bypass regulatory barriers on the movement of foreign currency the land mark transaction between the world bank and the IBM in august 1981, paved the way for the development of a market that has grown from a nominal volume in the early 1980s to an outstanding turnover of US$ 46.380tn in 1999.

The swaps market offers several advantages like: Theseareementre undertaken privately while transactions using exchange treaded derivatives a re public Since the swaps products are not standardized counter parties can customize cash flow streams to suit their requirements The swaps can be regarded as portfolios of forward contracts. The two commonly used swaps are Interest rate swaps: these entail swapping only the interest related cash flows between the parties in the same currency. Currency swaps: these entail swapping both principal and interest between the parties, with the cash flows in one direction being in a different currency than those in the opposite direction.

Participants in the derivatives market: There are three major participants in the derivatives market. They are Hedgers Speculators Arbitragers Hedgers: He is the person who enter the derivatives market to lock in their prices to avoid exposure to adverse movements in the price of an assertive such locking may not be extremely profitable in the extent of loss is known and can be minimized. They are in the position where they face risk associated with the price of an asset. They use derivatives to reduce or eliminator risk. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. Various factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in trading at the CBOT and when they reflect that price he wants, will sell futures contracts to assure him of a fixed price for his crop. A perfect hedge is almost impossible while hedging basis risk could arise. Basis = Spot price of asset to be hedged- futures price of the contract used. Basis risk arise as a result of the following uncertainties 1. He ct date when the asset will be bought or sold may not be known 2. The hedge may require hat the futures contracts be closed before expiration.

SPECULATORS: A speculator is a one who accepts the risk that hedgers wish to transfer a speculator takes positions on expectations of futures price movements and in order to make a profit. In general a speculator buy futur4es contract when he expect futures prices to rise and sell futures contract when he expects futures prices to fall, but has no desire to actually own the physical commodity. Speculators wish to bet on the future movement in the price of an asset. They use derivatives to get extra leverage. They take positions in the market and assume risk to profit from fluctuations in the prices. Infect, the speculators consume the information, make forecast about the price and put their money in these forecast. By taking positions, they are betting that the price would go up or they are betting it would go down. Depending on their perception, they may long or short positions on the futures or options or may hold spread position. ARBITRAGEURS Simultaneous purchase of securities in the market where the prices thereof is low and sale thereof in another market, where the price thereof is comparatively higher. These are done when the same securities are been quoted at different prices in the two markets, with a view to make a profit and carried on with the conceived intention to derive advantage from difference in pries of securities prevailing in the two markets as the Institute of Chartered Accountants of India Arbitrageurs thrive on the market imperfections. They profit by trading on given commodities, or items, that are in the business to take advantage of a discrepancy between prices in two different markets. If for example, they see the future prices of an asset getting out of line with the cash price, they will take off setting position are the tow markets to lock in a profit. Thus the arbitrage involves making risk-less profit by simultaneously entering into transactions in two or more markets. With the introduction of derivate trading the scope of arbitrageurs activities extends to arbitrage over time. I.e. he can by securities in an index today and sell the futures maturing in the month or two.

Hedgers Vs Speculators: Hedging is the key aspect of derivatives and also its basic economic purpose. In the US the commodity futures trading commission CFTC the futures regulatory authority, while considering proposals for approval of a new derivative product, articulately examines the ability of the product to provide hedging,. While the committee has also emphasized they hedging aspect of derivatives it fully recognizes that the derivatives markets capacity to absorb buying selling by hedgers is directly dependent on the availability of speculators ot act as counter parties to hedgers. Hedging will not be possible if here are no speculators. For the above reason, decisions about many aspects of derivatives trading e.g. contract size design and duration would have to strike a balance between the needs of the hedgers and the necessity to attract an adequate number of well capitalized speculators who are prepared to take upon themselves the price risk which hedgers want to give up. The fact is that a futures market, to be able to operate and be liquid, should have both hedging participation and speculative appeal. Some studies of futures markets in the U.S have shown that hedging activity accounts for about 50-60 percent of the markets total volume.

Trading of commodity Derivatives in India: trading of all the derivatives in India is carried over Exchange trading Over the counter Exchange trading: an asset when is traded over an organized exchanges is it is termed, to be traded on the exchange this type of trading is the general trading which we see on the major exchanges world over. The settlement in the exchange trading is highly standardized. Over the counter trading: an asset is traded over the counter usually be cause the company is small and unable to meet listing requirements of the exchanges and facilitates the trading in those areas where the exchanges are not located.. also known as unlisted the assets are traded by brokers who negotiate directly with one another over computer networks and by phone. Instruments such as bonds do not trade on a formal exchange and are thus considered over the counter securities. Most debt instruments are traded by investment banks making markets for specific issues. It someone wants to buy or sell a bond, they call the bank that makes the market in that asset. Exchanges Vs OTC trading; the OTC derivatives markets have witnessed rather sharp growth over the last few years, which have accompanied the modernization of commercial and investment banking and globalization of financial activities. The recent developments in information technology have contributed to great extent to these developments. while both exchange traded and OTC derivative contracts offer many benefits, the former have rigid structures compared to the latter. It has been widely discussed that the highly leveraged institutions and their OTC derivative positions were the main cause of turbulence in financial markets in 1998. These episodes of turbulence revealed the risks posed to market stability originating in features of OTC derivative instruments and markets. The OTC derivatives markets have the following features compared to exchange traded derivatives The management of counter party risk is decentralized and located within individual institutions.

There are no formal centralized limits on individual positions, leverage, or margining There are no formal rules or mechanisms for ensuring market stability and integrity, and for safeguarding the collective interests of market participants The OTC contracts are generally, not regulated by a regulatory authority and the exchanges self-regulatory organization, although they are affected indirectly by national legal systems, banking supervision and market surveillance.

Commodity Markets: Global perspective The major commodities trading exchanges globally are Chicago Board Of Trade(CBOT), USA New York Mercantile Exchange(NYMEX), USA London Metal Exchange(LME), United Kingdom Tokyo Commodity Exchange(TOCOM), Japan International Petroleum Exchange(IPE) Sydney Future Exchange(SFE) Brazilian futures Exchange(BBF) Winnipeg Commodity Exchange(WCE), Canada Marche a Terme International de France(MATIF),France Hong Kong Futures Exchange(HKFE),Hong Kong New Zealand Futures & Options Exchange(NZFOE), New Zealand Russian Commodity and Raw Material Exchange, Russia Singapore International Monetary Exchange(SIMEX), Singapore South African Futures Exchange(SAFEX), South Africa Dali an Commodity Exchange, China Shanghi Metal Exchange(SME),China Chicago Board of Trade(CBOT): the Chicago Board of Trade established in 1848, is leading futures and options on futures exchange. More than 3,600 CBOT members trade 50 different futures and options products at the exchange through open auction and or electronically. Volume at the exchange in 20003 was a record breaking 454 million contracts

In its early history, the CBOT traded only agricultural commodities such as corn, wheat, oats and soybeans, futures contracts at the exchange evolved over the years to include non storable agricultural commodities and non agricultural products like gold and silver. The CBOT first financial futures contract, launched in October 1975, was based on Government National Mortgage Association mortgage backed confiscates. Since that introduction, futures trading has been initiated many financial instruments including us treasury bonds and notes, stock indexes, and swaps to name but a few. Another market innovation, options on futures was introduced in 1982.

For more than 150 years the primary method of trading at the CBOT was open auction, which involved traders meeting face-to-face in trading pits to buy and sell futures contracts. But to better meet the needs of a growing global economy, the CBOT auxwaadully Lunches era diear wlwxronix resen1994. During the last decade, as the use of electronic trading has become more prevalent, the exchange has upgraded it electronic trading system several times. Most recently, on January 1, 2004, the CBOT debuted its new electronic platform powered by the cutting edge trading technology. As of January 1, 2004, the Chicago Mercantile Exchange is providing clearing and related services for all CBOT products.

New York Mercantile Exchange(NYSE): The NYMEX in its current form was created in 1994 by the merger of the former New York Mercantile Exchange and the Commodity Exchange of New York. Together the represent one of the worlds largest markets in commodities trading. It deals in futures in oil products, such as crude oil, heating oil, leaded regular gasoline, natural gas, propane and in rare metals such as platinum and palladium. It also deals in gold and silver, aluminum and copper, sharing with the London Metal Exchange a dominant role in the world metal trading. London Metals Exchange: The London Metal Exchanges is the worlds premier nonferrous metals market with highly liquid contracts and a worldwide reputation. It is innovative while maintaining its traditional its strengths and remains close to its core users by ensuring its contracts continue to meet the high expectations of industry. As a result, it is highly successful with a turnover in exceeds of US$3,000 billion per annum. It also contributes to the UKs invisible earnings to the sum of more than 250 million in overseas earnings each year. The origins of the London Metal Exchange can be traded as far back as the opening of the Royal Exchange in 1571. this is where metal traders first began to meet on a regular basis. However, it was in 1877 that the London Metal Market and Exchange Company was formed as a direct result of Britains industrial revolution of the 19th century. This led to a massive increase in the UKs consumption of metal which required the import of enormous tonnages from abroad. Merchant ventures were investing large sums of money in this activity and were exposed to great risk, not only because the voyages were hazardous but also because the cargoes could loss value if there was a fall in price during the time it took for the metal to reach Britain.

indian perspctive: there are three major exchanges for the commodity trading in india.they are: The national commodities and derivatives exchange Ltd(NCDEX) Multi commidities Exchange of india ltd(MCX) National Multi-commodity Exchage Ltd(NMCE) National Commodity & Derivatives Exchange Limited(NCDEX): The national commodities and derivates exchange ltd is a professionally managed online multi commodity exchange promoted by ICICI Bank ltd ,life Insurance corporation of india(LIC), National Bank for Agriculture and rural development (NABARD) and national stock exchange of india lilmited (NSE).Punjab national bank (PNB), CRISIL limited(formaly the credit rating information services of india limited),indian farmers fertilizer co-operative limited (IFFCO) and canara bank by subscribing to the equity shares have joined the intial promoters as share holders of the exchange .,NCDEX is the only commodity exchange in the country promoted by national level institutions.this uniqe paretage enables it to offer a bouqute of benfits,which are currently in short supply in the commodity markets.the institutional promoters of NCDEX are prominent players in their respective fields and bring witrh them institutional buliding experience trust nationwide reach techonology and risk management skills. NCDEX is a public li8mited company incorporated on 23 ,2003 under the

compinies Act, 1956 .It obtained its Certificate for Commencement of business on May 9, 2003.It has Commenced its operations on December !%, 2003.

NCDEX is a national level, technology driven de maturalized on line commodity exchange with an independent board of directrors and profiessional not having any vested interest in commodity markets. It is committed to provid a lod class commodity exchange flatform for market partiscipenmts to trade ina wide spectume of commodity derivativen by best global pracitedx, professionalism and transparency. Forward market commission regulates NCDEX in respect of future trading in commodities. Besides, NCDEX is subjected to various laws of the land like the companies act stamp act contract act forward commission act and various other legislations, which impinge on its working. NCDEX is located in Mumbai and offers facilitiews to its members in more than 390 centers throughout India. The reach will gradually nbe expanded to more centers. NCDEX currently facilitiates trading of thirty six commodities Cashew, Castor Seed, Chana , Chilli, Coffee, Cotton, Cotton Seed oilcake, crude palm oil, Expeller Mustard oil, Gold, Guar gum, Guar Seeds Gur, Jeer, jute sacking bages, Mild Steel Ingot, Mulberry Green Cocoons, Peper, Rapeseed mustard Seed, Raw Jute, RBD Palmolein, Refind Soy oil, Rice, Rubber, Sesame Seeds, Silk, Silver, Soy Bean, Sugar Tu, Turmeric, Urad (Black Matpet) Wheat, Yellow Peas, Yellow Red Maize & Yellow Soybean Meal. At subsewquent pahases trading in more commodituites would be facilitated.

Multi commodities Exchange of india ltd(MCX): MAKE MCX the 'Exchange of Choice' MCX an independent and de-mutulised multi commodity exchange has perment recognition from GOverment of india for facilitating online trading ,clearing and settllement operations for commodity futures market across the country.KEy share holder MCX are financial technologies (India) ltd. State Bank Of Hyderabad ,state bank of saurashtra ,SBI life Insurence Co.Ltd. Union Bank OF india ,BAnk of India ,Bank of baroda ,corporation bank. Head quartered in Mumbai, MCX is led by an expert management team with deep domain knowledge of the community futures markets.through the integration of dedicated resources, robust technology and scalable infrastructure, since inception MCX has recorded many first to its credit. Inauguarated in November 2003 by mr.mukesh ambani, chairman &managing director, rereliance industries ltd, MCX offers categories: Agri commodities, Bullion, metals-ferrous&non-ferrous, Pulses, Oil&oilseeds, Energy,plantations, spices futures trading in the following commodity

MCX has built strategic alliances with some of the largest players in commodities ecosystem, namely, Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Associations of India, Pulses Importers Association, Shetkari Sanghatan United Planters Association of India and India pepper and spice trade association. Today, MCX is offering spectacular growth opportunities and advantages to a large cross section of the participants including producers traders corporate importers, Exporters,

Vision and Mission of the Multi Commodity markets by empowering the market participants through innovative product offering and business rules so that the benefits of futures markets can be fully realized offering unparalleled efficiencies, unlimited growth and infinite opportunities to all the market participants. At MCX we believe that performance excellence and affordability would be the key drivers in promoting and popularizing commodities futures trading in the country. Exchanges in the new economy will be driven by strong service availability backed by superior technology and MCX is will poised to emerge as the Exchange of choice for the commodity futures trading community

The National Multi Commodity Exchange of India ltd: The first state of the art de mutual zed multi commodity exchange NMCE commence futures trading in 24 commodities on 26th November, 2002 on a national scale and the basket of commodities has grown substantially since then to include cash crops, food grains plantations, spices oil seeds, metals bullion among others, NMCE was the first exchange to take up the issue of differential treatment of speculative loss. It was also the first exchange to enroll participation of high net worth corporate securities brokers in commodity derivatives market. NMCE has also made immense contribution in raising awareness about and catalyzing implantation of policy reforms in the commodity sector. It was the exchange which showed a way to introduce warehouse receipt system within existing legal and regulatory framework. It was the first exchange to complete the contractual groundwork for dematerialization of the warehouse receipts. Innovation is the way of life at NMCF.

National Multi Commodity Exchange of India Ltd. Promoted by commodity relevant public institutions central warehousing corporation National Agricultural Cooperative Marketing Federation of India Gujarat agro-industries corporation limited Gujarat state agricultural Marketing board National institute of agricultural marketing and Neptune Overseas Limited. The Punjab national bank took equity of the exchange to stable that linkage. Even today, NMCE is the only exchange in India to have such investment and technical support from the commodity relevant institutions. These institutions are represented on the board of directors of the exchange and on variouscommittes set up by the exchange. The day-to-day operations of the exchange are managed by the experienced and qualified

professional with impeccable integrity and expertise. None of them have any trading interest. Vision: National Multi-commodity exchange of India limited is committed to provide world class services of on-line screen based futures trading of permitted commodities and efficient clearing and guaranteed settlement, while complying with statutory/regulatory requirements. We shall strive to ensure continual improvement of customer services and remain quality leader amongst all commodity exchanges. Mission: Continuous improvement in customer satisfaction Improving efficiency of marketing through on-line trading in Dematerialization form Minimizing of settlement risks improving efficiency of operations by providing best infrastructure Rationalizing the transaction fees to optimum level

Implementing best quality standards and testing in tune with trade practices Improving facilities for structured finance Improving quality of serves rendered by suppliers Promoting awareness about on line features trading services of NMCE across the length and breadth of the country

ANAGRAM STOCK BROKING LIMITED Anagram stock broking a firm is part of the 2,000 core Lablab group. Anagram is a member of the NSE . Ever since its foundation in 1993, Anagram securities have always focused on the needs of the retail client. Last year, billings crossed 17,000 cores with around 5,000 people making their trades through Anagram. The firm has its roots in western India especially Gujarat where it is the biggest player. But it has expanded considerably. The investment philosophy of Anagram focuses primarily on recommending purchases in financially sound companies at reasonable market prices. The firm also recommends sales of companies which are above the sales price targets or whose business prospects are poor. Anagram does no proprietarily trading and manages neither mutual funds nor is it interested in corporate fianc. They believe in offering advice that is completely untainted with ulterior motives. There are no sweetheart deals with clients pressed to buy stocks simply because the firm has taken a position or lent money to a company. The only relationships at Money pore will be those that citizens choose to forge. Anagram realizes that every individual is unique in terms of this investment time horizon objectives personal financial situations level of interest and inclination in the investment decision taking process and last but the most important, his risk taking ability. Although it is hard to beat the level of absolute customization, the firm has attempted to individualize as much as possible. A team of highly skilled analysts and experienced investment professionals constantly monitor the potential investment in companies that can be traded on the basis of analytically derived risk ratios. The companies, generally, are selected on the basis of many quantitative and qualitative benchmarks. These efforts direct and prevent permanent loss of capital and to make absolute returns over time with a minimal amount of business risk. Angram is confident that through this process, over a three-year period, the investment results will be superior to any market indes. The portfolio, however, may fluctuate in the short run as the investment decisions will be guided by business prospects and not by short term market movements. This process is expected to be will suited to the needs of investors.

Anagram foresees its role as that of an unbiased information provider and advisor attempting to empwer individuals to take investment decisions and styles that suit them. Our selections of companies reflects this many of the companies that we have recommended for investment are providers of goods and serives that touch the every day life of most of us our belief is that the comfort level of investing in such companies therefore, would be very high. silver: For often what is called an industrial commodity silevers unique properities includes its strength malleability and ductility its electrical and thermal conductivity it sensitivity to and high reflectance of light and, depite it being classed as a precious metal its reactivity which is the basis for its use in catalysts and photography. This versatility means that there are few substitutes metals for silver in most applications, particularly in the high tech uses in which reliability precision and safety are paramount. Demand of silver is built on three main pillars industrial uses photography and jewelry silverware. Together these three categories represent more than 95% of annual silver consumption. Sources of silver Silver mines Lead/zinc mines Copper mines Gold mines Others Percentage contribution 27 32 25 14 1

Most of the silver production activity is therefore relatively insensitive to the price or silver, even though the demand for silver has surpassed supply for many years. There are not a lot of primary silver producers in the world and the world mined silver supply has been constant for years now.

Modern technology have revealed the remarkable range of electrical mechanical optical and medicinal prosperities that have placed silver as the key metal in many applications today. Silver market: Silver consists of two types of markets physical markets, which are operated by bullion dealers banks and commodity dealers and the paper silver market. The London bullion market is the leading physical market, the global hub of OTC trading in silver, is the metal main physical market. Metal industry participants use the exchange for hedging, to protect themselves against adverse fluctuations in metal prices. In this a bidding price generates a daily reference price known as the fix. The New York mercantile exchange is the largest physical commodities futures exchange in the world. The exchange trades in oil, gasoline. Heating oil, natural gas propane, silver, gold platinum and palladium, the COMEX divisions silver futures and options contracts are used by wide variety of market players in the silver industry to hedge price risk. 35

silver futures are used in investment portfolios. Options contract are not yet valid in India. Silver is invariably quoted in the US dollar per troy ounce. Silver demand: Total industrial demand rose by 1.3% in 2002 to 10,651 tons through this remains substantially lower than 2000s 11,705 tons. There were sizeable gains in Japanese and US demand in part due to restocking but this was countered by heavy losses in inida. Silver demand components: Demand is dominated by three main categories jewelry and silverware industrial and photographic fabrication. These shares have been broadly sstable through photographys share has slipped a little over the last decade. Coin demand the final paret of fabrication off take, has also seen a slight fall in its share of the total. The remaining elements of demand, government purchases, producer hedging and investment, are alike in that, on a net basis they may no t feature every year on the demand side. Fabrication demand The tie silver and economic activity, given that around two thirds of total silver fabrications is in the industrial and photographic sectors. This differentiates silver form gold where an element of investment is presents in the purchase of jewelry and bars. Sluggish economic activity in the worlds major economies had a material impact on total fabrication off tale in 2002. this was quite marked in Europe where fabrication on the jewelry side was also hit by market shake loss to ,low labor cost producers. In 2002 fabrications demand grew by 3% in east Asia and by 5% in north America. Growth in Japanese industrial demand and Thai jewelry demand accented for much of the formers increase while higher Mexican jewelry fabrication and US industrial demand explain much of the later change. Photographic off take was broadly flat year on year in north America but no significant in Europe and Japan silver supply: silver supply is derived form two sources new mine production and esxistijg above ground stocks of the bullion and fabricated product. In 2002, some 30% of the markets requires equivalent to around 7,840 tons were met by recycled above ground stocks, the balance being provided by newly mined silver.

Slver supply components Mine production is unsurprisingly the largest component of silver supply. It normally accents for a little under two thirds of the total, but mine production is not the sole source the other thing being scrap, disinvestments, governments sales and producers hedging. Scrap is that which returns from the market when recovered from existing manufactured goods or waste. This could include old jewelry photographic chemicals, even discarded computers. Disinvestments and government sales are similar as both comprise the return to the market of the old coins or bars by the private sector or the governments. The final though normally the minor component of supply is procurers hedging. Hedging may not appear every year as an element of supply on the net basis as it can contribute to demand.

Domestic Scenario For centuries, India has been a substantial market for gold and silver, with both metals still closely woven into the social fabric of the sub-continent. Gold and Silver are privately held and it remains the basic form of saving for the majority of the Indian families, especially in the rural areas. The market has changed rapidly during the 1990s with official import of metal permitted for the first time in a generation. Imports were forbidden from 1947 untill 1992, except for the limited amount for jewelry made for the export. According to Gold Fields Minerals Services, London (GFMC) data, open General License (OGL) imports are the only significance source to the Indian market, with shipments by Non-resident Indians having all but disappeared. Unfortunately for silver trade, the white metal is nit high on the political or economic agenda.

Industrial application By contact with United States and Japan, Indian industrial off take for fabrication in hardcore industrial application like electronics and brazing alloys accounts for only 15%and the rest being for foils for use in the decorative covering of food, plating of jewelry and silverware and jari. The biggest rise in industrial silver demand in India last year was seen in pharmacy and chemicals, which rose by over 60 per cent. Much of the growth came from silver nitrate production, which also surged last year. In

jewelry and silverware Jewelry designs can carry a special significance: some are only worn by young children, others denote marriage and still other widowhood. There are also regional variation, so that the style of jewelry worn in one part of the country is completely unknown in another. Even communities living side by side will possess their own distinct pattern. This is clearly visible in places like Banni, Kutch in the west Indian state of Rajasthan, where a huge conglomeration of castes and sub-castes has an enormous range of designs, some of the most spectacular in the country.

One tradition among Indian village communication is the wearing of extremely chunky silver jewelllery, and the evolution of this style reveals a great deal about Indian village life. The silversmith tosses repurchased item into the melting pot, from which they will be fashioned into new pieces. The agriculture output plays a vital role in the production of silver, due to poor rains the crops are adversely affected. Although the agriculture sectore has been weak, the other sectores of the economy were actually quite robust, as telecom and software exports have been partially strong and have contributed to robust industrial output.

Gold Month YTD 12-mos -5.8% 3.3% 26.8%

Silver -4.5% 11.5% 22.7%

CRB Index 3.8% 12.6% 32.9%

US Dollar Index 1.0% -5.5% -11.0%

euro -1.5% 6.6% 14.0%

Swiss franc -5.1% 8.0% 13.6%

British pound 0.0% 0.0% -0.8%

Addition to this ayurvedic uses of silver rose year-on-year. Jari a gilded silver thread used in embroidery. Was the only category to show a decline last year falling by over fiver percent. According to GFMS the possible explanation for this was the weakness of the rural economy, the mainstay of demand for jari. Industrial demand for silver in 2002 Pharmacy & chemicals Jari Plating Electrical Foil Soldering & brazing Photography 22.40% 17.10% 13.70% 13.50% 9.0% 5.4% 0.85%

Indias demand for silver has increased by 177% over the past 10 yeas as compared to 517 tones in 1991. According to GFMS India has merged as the third largest industrial user o f silver in the world after US and Japan. By contrast, fast growing sectors like telecom software and durable goods exports have all contributed to strong real industrial demand as a result, GFMS estimates that electro needs solders and brazing ally off take increase, by around 4 to 5% although real industrial take in India is still relatively low there is very indication that this is likely to grow in the future. Significantly impact the price of metal. Mine production of new silver has risen by only 4% from 1990 to 1999 while total fabrication demand increased by 22% during the same period.

International scenario Silver is mined in more than 50 countries. Fifteen countries produce toughly 94% of the world s silver from mines. Mexico is the largest producer of silver from mines followed closely by Peru. Other major silver producing countries in decreasing order of production are Australia. US , China, Poland, Chile. The main consumer countries for silver are the US, India Canada, Mexico the France, Germany, Italy and Japan. The main factors affecting the demand for silver I these countries are macro economic factors such as gross domestic product growth, industrial production income levels and whole host of there financial factors indicators. For the last consecutive fourteen years the demand for silver has been exceeding its supply. The demand for silver has been consistently rising throughout the world but the supply form the mines has been short to meet the timing demand. With the gable economy pricing up, the industrial demand for silver has been rising steadily. Throughout the 1990s the main question for the silver market has been the rate at which above ground stocks of bullion and coins are being consumed by the widening gap between fabrication demand and conventional supply, when this erosion of stocks might begin to

Major factors affecting silver: Supply side deficit : One of the most astonishing aspects about silver as a commodity is that demand has outstripped supply for nearly fourteen years. Demand for silver in all categories of use has increased substantially since silver began running annual deficits back in 1990. During reversionary periods demand for photography, jewelry and silverware may decrease, but supply can also decrease since 70-75% of silver produced is a by product of copper, gold, lead. Since a very large proportion of silver comes as a by product of mine production other metals hence the supply of silver is not price elastic and does not increase substantially when the price of silver rise. Effectively the supply of silver is governed by the prices of zinc lead, copper and gold. If the prices of those metals are lower, some mines will reduce mining activites and thereby silver supply goes down and vice versa. Hence the supply of silver is not likely to increase substantially in the coming hears too, despite of rising demand from industry due to improving global economy. This puts an upward pressure on the prices of silver in the coming years. But despite rising demand, low prices continue to persist. Silver reserves: Outsides government sale of gold and silver, the main reason is the accumulated stockpiles of silver. A lot the supply deficit in silver is made up by secondary supply that comes from old scrap and coin melt. Governments have also supplied silver to the market from accumulated stockpiles. The US treasury held 2.06 billion ounces in 1959. a good majority of this stockpile was sold off during the 60s with the balance used in the minting of silver eagles coins from 1986through 2002.

The US stockpile has now been depleted. As of 2002 the largest remaining government silver inventories are in India, which is estimated to hold around 87 million ounces. Silver inventories have fallen from around 2.2 billion ounces at the beginning of 1990 to less than 500 million ounces today. Reported inventories held on the COMEX Tocom, CBT and US and Japanese industry have a fallen dramatically over the last four years. These institutional inventories have fallen from 245.8 million ounce in 1996 to 144.4 million in 2002, a drop of 41.3%. World Mine Production, Reserves, and Reserve base Factors affecting the price movement of silver: since silver is also a precious monetary metal like gold, hence it is aggected by various international factors that affect gold such as inflation, changing value of currencies, geo political situation, uncertainties around the world. Being an industrial metal, it is also affected by factors like global economic growth,

Production growth around the world, technological changes in various industrial applications.

Dollar movement: Dollar index measures the strength of US dollar against the major currencies of world. Hence it measures the relative strength of US economy vis--vis other countries. The US currency dollar functions as the worlds reserve currency. Gold & Silver are precious metals and are also considered currencies and they have a negative relation with dollar. When the dollar is strengthening, the bullions lose their shine because people the have more confidence in dollar assets than other investments and when dollar is weakening, the bullions start shining. The US and the world went off the gold standard by abandoning Britton woods and quit using silver as coin there has been an attempt to treat silver as purely and industrial commodity. Since the 90s bubble burst, demand for US assets has been in sharp decline resulting in dollar losing its value against other currencies. The yields on the dollar denominated assets have significantly reduced. Dollar has been under tremendous pressure due to various international factors such as US & global economic slowdown in recent times. Uncertainty in the wake of terrorism, political uncertainties, September 11 attack pm US which terribly shook up US trade and business, low inters rates unemployment rising oil prices, all these factors coupled with massive US trade deficit has put enormous pressure on US dollar. US trade deficit has crossed $500 billion which is more than 5% their GDP and has reached alarming levels. US government has been creating their fiat currency i.e. dollar out of thin air in order to

Meet their debt obligat6ion but at the same time depreciating the value of their currency enormously. But a rise in US interest rates which is likely this year, which will increase the yield on dollar denominated assets and will boost investor confidence and help dollar to strengthen due to increased demand. This may have a negative effect on both gold and silver prices in futures.

Dollar index has been falling in the recent times. It has fallen from its high of 120 to 85 on the recent times. Alone. A dollar decline of foreign exchange markets can cause a rise in the dollar price of commodities; an s the market shifts to keep costs constant to those in other currency areas, which would otherwise see a price decline. This effect largely explains the most recent commodity price rise and their sustained upwards movement in the short run depends a lot on the way the dollar moves. Since the key driver of silver prices ins the direction of the US dollar, hence it is important to look at factors that affect dollar movement. CRB index

CRB index reflects price movements of 22 basic commodities whose markets a re presumed to be among the first to be influenced by changes in economic conditions. As such, it may serve as one early indication of impending changes in business activity. The commodities use are I most cases either raw materials or products close to the initial production stage which, a result of daily trading in fairly large volume of standardization qualities, are par4ticularly sensitive to factors affecting current and future economic forces and conditions. Being and industrial metal, movement of CRB index thus is positively correlated with the movement silver prices. When the global commodity prices rise silver also joins the rally. Hence CRB index is an important indicator for silver prices and it generally gives an early indication of the coming price rise or fall. China factor: Since 1999, China has emerged as the single most significant factor in the silver equation and as a large silver producer, a most challenging factor. Chinese government has disposed of more than 300 millions ounces of silver inventories since 1998. of net government sales amounting to 87.2 million ounces in 2001 and 71.3 million ounces in 2002, GFMS attributes 68 and 51 million ounces, respectively to China. This has been one of the major factors, which has kept the prices of silver low in recent years even thought the production from mines has been low vis--vis demand.

But since last year there has been a marked slowdown in the pace of Chinese sales and it sis now more price sensitive in its silver sales. China has also been increasing it production capacity of silver in recent years along with other commodities due to its fast growing economic needs.

Hence China would be a significant factor in the coming years for all commodity prices including silver. Gold & Silver: The macro economic factors that affect gold also affect silver in the similar manner. Silver price move has a very strong relation with that of gold price movement. Gold and silver share the same characteristic as precious metals as hedge a against inflation as safe haven both are considered as having store for value. In general both go up with the declining value of dollar and other currencies. an important difference between the two is that gold seemingly attract a fair few longer term buy and hold inventors whereas silver appears to be of interest just to short term players, which makes if difficult for silver to hold on to gains. There is not much of investment demand for silver and a lot of selling comes when silver price crosses psychological $5% Silver price movements are much more volatile than that of gold. When there is a rally in commodity and bullion market, silver rise faster than gold and also dips faster in the bear market. These could be attributed to the fact that the silver market is very thin a s compared to the gold market in valuators, hence hunch more volatile. But in general both fool the same price pattern. Silver uses: Although about one quart of the worlds annual silver supply is consumed in photography, much of this silver is recycled from within the photographic sector from used film fluids and paper. all of the silver in color film processing is kept in the developi8ng solution none end up on the photo meaning that 100% recycling is possible Black and white imaging is the purest recycler of silver, X-rays consume 30 to40% of the silver used in photography annually and the number of X-rays taken each year is growing rapidly.

3.Much of the growth in demand for photographic products comes from developing countries where recycling industries are immature and access to digital technology is very limited. Sterling silver contains 92.5% silver it is commonly alloyed with gold or copper for manufacture of stunning jewelry and silverware. Silver can be buffed to a higher polish than any other metal, a quality highlighted in mirrors and reflective coatings on glass, cellophane and metal. silvers superior ductility and reflective luster make it a better metal for jewelry than the more brittle and duller gray finish of platinum it is also much less expensive As a precious metal silver is also used in coinage programs in many countries. The US strategic defense stockpile contained approximately 2 billion ounces of silver after world warII. The last of this silver was delivered to the US Mint in 2001. Silver for future US coinage programs will be sourced from open market purchases. One of the most fascinating properties of silver is its bactericidal quality.

In ionic form silver kills bacteria by breaking their cell walls yet it is inert in the human body. No silver resistant bacterial strains are known to exist. Besides the more commonly known silver medicinal uses in eye drop nasal spray and burn ointments, silver is replacing the using of chlorine, which is now suspected to have long term toxic effects, in water filtration systems for hospital, apartments, pools and municipalities. Silver compounds may grow very rapidly in use as wood preservatives as a substitute for arsenic compounds, which are toxic to the environment. Several large home product retailers have stated that, within two years they will no longer sell arsenic treated wood. In a similar use, paints containing silver compounds may gradually replace those currently used for marine anti-fouling coatings for boats docks piers. Silver has the highest electrical conductivity of all metals in fact silver defines conducted all other metals sure compared against it. silver possesses the unique ability to not spark, making it use in electrical contacts irreplaceable

Silver has the unique ability to we may metals it is this quality that consumes silver in many soldering and brazing application. Silver is replacing tin leas solder sin many applications for its higher conductivity and to eliminate the use of lead of environment reasons. Silver tape is a critical component of high temperature superconductive wires, which can carry more electrical current than conventional wire bundles, with far less resistance and in fraction of the space. Superconductive cables will be a critical components old power grids of the future especially in metropolitan areas where space is a t premium and the existing power infrastructure must carry greater current loads.

OBJECTIVE OF PROJECT: Have taken up the project on commodity futures market with reference to silver for the following. To know the importance of silver in the globalize economy to study the scope silver in the commodity futures trading to provide suggestions to the traders of Anagram Stock broking ltd suggesting the necessary trading strategy and the methodology he traders at Anagram to find out the consumption silver by various countries to analyze the price trends movement in the silver over the exchange

RESEARCH METHODOLOGY: The research methodology followed during the project includes the following Collection of data from secondary sources Personal interaction with commodity trading experts and trades the use of analyst theory forms a manor part of the report SECONDARY SOURCES; Data of price trends of the contract collected from the bhavcopy of MCX Personal interaction with traders and experts in the trade who helped us understand the price movements Analysis process: fundamental analysis: a study of commoditys history and the present price moments with the importance of the commodity with the various economies including India. The print media has also proved to be great friend during the project. Technical analysis: Technical analysis has been done on they computing the relative strength of the closing price with a 5 day average, also the smoothed relative strength. Relative strength was computed on the bases of average gain and loss i.e. Avg.gaun/Avg.loss Smoothed relative strength was computed by (pervious average gain 13+current gain) / (pervious average loss*13+current loss)

Analysis of silver trends for the contract month July FUNDAMENTAL ANALYSIS: The silver contract for the month of July 2005 show the effect of the bullion prices which may remain under selling pressure followed by a better than expected traded data. Silver needs to consolidate itself broadly between the support and resistance levels. The later shows the large influence by the week dollar, higher crude oil prices and the bullish sentiment of traders. The markets are positive a t international level which the help to take the path of gold & Crude oil. prospect of higher interest rates in the US high oil prices, a slowdown in the Chinese economy and rising geopolitical risk which have a negative affect on stocks actually go well for the silver prices. The global prices of bullion moved in one direction i.e. upwards as the dollars feel continuously albeit marginally from 1.33 to 1.35against euro. The same was however not translated in the domestic market were the prices kept fluctuating depending on the demand and supply and other market conditions, profit booking was responsible for most of these variations s the dealers took advantage of the global movements. The rupee strengthened against dollar even though the movement was guided by balance of payments flows. TECHNICAL ANALYSIS: Silver bounced back after the initial declining mood. The market took the path of Gold and Crude oil with the positive international market. With international market at a boom phase increased from $6.47 to $6.58 ounce similar trends were found in the domestic market silver rising by 4.7% rise being relatively higher than gold. The trend in gold was replicated in silver prices too, silver climbed up in the first half of March and the toppled down. During this period, the prices at which the contracted traded were highly correlated to international prices pointing out the say of global factors on the domestic prices. The demand of silver was affected when the photographic demand came down by around 20% The lower industrial growth, leading to less demand for fabrication processes hence bringing down the demand for silver. The trend line of 9DMAvg clearly shows volatility of the prices of silver, which are correspondent to the world market. However, the volume being traded in the beginning of the contract was far much close the prices of silver at the closing hour of each day.

CONRACT: September 2005 Fundamental analysis: A silver future in MCX is trading in a narrow range waiting for the direction from the international markets. Silver prices showing a point-to-point increase by 2.1 and 1.95 in the global and domestic markets respectively. Silver prices are influenced by the relatively fluctuating demand which on an average displayed productivity. The metal traded up to an 11009 area was selling from a number of area provided temporary resistance, however, fresh buying of und eventually took the price through. It appears that the market is prepared for future gain when the closing bell sounded. Through out the contract the metal was forced to high of 11024 by the demand and supply forces, the prices of relative metals, and the week dollar. The prices of gold declining due to the global economic factors silver showed a different trend, the metal was increasing with the global market proving the effect of gold stocks not always affecting silver stocks.

The volume of silver traded in the contract increases only in the month of April, though thee was an increase in the volume the prices of silver were fluctuating with a marginal rise and fall guided by the forces of demand and supply. The 9DMAvg when cuts the 18DMAvg from below it predicts the rising trend of silver in the market, which is justified by the RSI and SRI the trend line of silver later in the contract period almost moves along with the 9DMAvg and the 18DMAvg colliding with each other at a certain point showing the margin of silver increasing towards the end of the contract. At the end of the contract silver closing much lower then with what it started but it manages to bring a faith in the investors for profit booking. Technical analysis: The spread that silver stocks have predicted show the volatility of the stock when compared to the gold or crude oil. On a given contract, the stock reaches the high and in the very same contract, it reaches its lowest index. The silver stock is not stable enough to be predicted. The stock spreads its self between a low of 188 and a high of 120 in just a span of two days, which is considered to be highly volatile in a nature. Thought the silver sock shows a smooth line graph it is seen that the stock is able to manage itself with the RSI and SRI. High industrial demand of silver and comparatively low supply of silver in the domestic as well as global market has brought the silver stocks in position that has increased the index of silver in the stock markets worldwide. The predication of the good monsoon has an effect on the stocks too. The volume and close graphs shows that the volume with which the silver trades is low in the beginning when compared to the high close index in the market. As seen in the pervious contract also the trading volume increases towards the end of the contract, which results in the contract to close low when compared to the high that it has reached during the contact period. The moving average of 9 days and 18 days predicate the same. Owning silver is like owning a share of a one product company. Normally, this lack of diversification would be a negative but silver is used throughout a wide spectrum of industries. Moreover, where it is used, it cannot be replaced. No substitute exists that combines all of its properties. This has also brought effect on the silver stock. The selling pressure is floating on the Indian bullion market with an expectation of the metal to raise high in the next month.

Contract: December 2005: Fundamental analysis: the December silver contract show the trading pattern of silver were it has a steep high and an equivalent low at the3 beginning of the contract. In the mid it follows the same reach in a high of 10035. the dollar relationship with silver remained at .78 marginally higher that the long term coefficient or .74 dot to which we can see the silver stock to increasing in a high speed when compared to the other commodities in the market. The dollar was gaining on its strength that resulted in the stock relationship to be marginally high than expected. The monsoon season has began which was a bit late but has brought hopes in the heart of the traders and their sentiments. The imports of silver due the demand has also in creased. The demand during this season has increased with the festivals and the marriage season arriving hence increasing the demand of silver jeweler. As silvers supply deficits continue unabated, the bullion bank dealers may grow more desperate in terms of suppression and may even desert the ranks. Dual contrary forces are at play here. Desperation can further lead to extreme form of price suppression tactics (downward price pressure) coupling with increasing desertion of the ranks. This will intensify the saw-tooth formation of violent upward movement followed by almost equally violent crash. Technical analysis: The silver stock has again shown its volatility spreads its self from 128 moving steeply downwards to 154 in the very beginning of the contract. By the end of the contract the neat kisses us strength and tries to fluctuate normally but rises again for it cannot be stable due to the global macro factors effecting it. The China factor considering it the market shows a boom towards the end of the contract. Fluctuate highly. The stock manages to reach the resistance level then goes for a correction.

Technical chart: Speculation has been rage in the silver market abut possible stockpiling of bullion by large players before filling for a silver ETF which helped the bullion to boost in the international market. The result was be seen in the domestic market too. Silver is moving with a comfortable RSI to support itself from a downfall. Unlike the previous, two contacts silver trades with a considerable good volume. The moving average when considered show that the stock is moving towards a risky end cit. both the 9 day and the 18 day ,proms a average , mover across the same line showing no difference between themselves. The 9DMAvg cuts the 18DMAvg from the above showing a low price and later moving towards the 18DMAvg and colliding itself with it.

Both a t a certain point are equivalent to the prices of close during the contract. The international market is unable to hold or to settle off which bas an effect in the Indian markets too. Silver continues to have its selling interest on up basis. The metal traded bact to avoid danger of further weakness. The international markets predict potential for further losses but the domestic market showing a different scenario. 62,63

SUGGESTIONS AND RECOMMENDATIONS: Speculation is risky game the gains and losses are very high. The profit is very tempting and the same time if not cautious may end up in loss. Being a highly volatile stock it is important for the trader to have regular check over the market. The price of silver fluctuates even with a small change in the polices of the government. The grader needs to watch the government regulation on regular bases. The market fluctuations due to the demand and supple, stock of silver s to be considered before trading. The other factors affecting the supply of silver must be taken care off before trading.

Gold Month YTD 12-mos -5.8% 3.3% 26.8%

Silver -4.5% 11.5% 22.7%

CRB Index 3.8% 12.6% 32.9%

US Dollar Index 1.0% -5.5% -11.0%

euro -1.5% 6.6% 14.0%

Swiss franc -5.1% 8.0% 13.6%

British pound 0.0% 0.0% -0.8%

BIBLIOGRAPHY; Books Derivatives market Indian Derivatives Market Indian financial markets Authors ICFAI press ICFAI press ICFAI press

Derivatives market in India 2003 Thomas

WEBSITES Visited: www.ncdex.com www.nmce.com www.lind-waldock.com www.kito.com www.retures.com www.google.co.in www.indianinfoline.com www.answers.com www.mcx.india.com www.investopedia.com www.silverinstitute.com www.gfms.com www.financilexpress.com www.bloomberg.com www.icicidirect.com www.moneypore.com