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Financial Products, Markets & Services
Derivatives and Commodity Markets

By: Jerome M
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Some of the major commodities are:
Agricultural Commodities
e
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Wheat, Potatoes,
Livestock

Producers

- Use the markets to hedge production

Prices are influenced by supply and demand

Base Metals e
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aluminium and copper

Precious Metals e
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gold
and silver

Supply

- Availability of raw materials
- Costs of extraction and production

Demand

- Underlying users e
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Industrialising economies – China and India
- Investors buy metal futures in anticipation of excess demand
- Investors incorporate commodities into specific funds
Includes the market for oil (and other oil-based products like
petroleum), natural gas and coal
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g
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g
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These are OTC derivatives and Exchange-Traded Derivatives
(ETD)
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Main types
traded are:
 Futures
 Options
Functions of the exchange:
 Provides a marketplace for trading to
take place
 Provides some sort of guarantee that
the trade will eventually be settled by
using an intermediary (known as the
‘central counterparty’) for their trades
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Main types traded are:
 Interest rate swaps
 Foreign exchange forwards
The OTC market is the larger of the two
in terms of value of contracts traded
daily
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It was originally set-up in 1982
In 2001, Euronext bought LIFFE and renamed it Euronext
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It is now part of ICE
following the takeover of NYSE Euronext
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g
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g
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It also runs futures and options markets in Amsterdam, Brussels, Lisbon and Paris
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 Principal products are German bond futures and options (Bund – German
government bond)
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The platform enables members from across Europe and the US to access Eurex
outside Switzerland and Germany
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ICE Futures introduced Europe’s leading emissions futures contract in conjunction
with the European Climate Exchange (ECX)
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It also took over NYSE Euronext and, as a result, by acquiring LIFFE, became the
world’s largest derivatives exchange operator
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More than 95%
of its business is from overseas
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Trading happens in 3-ways:
open outcry in the ‘ring’,
through an inter-office telephone market
 through LME Select, the exchange’s electronic trading platform
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Reduces
uncertainty
over price
and the risk
of a lack of
supply

Advantages

Offers the ability to
speculate on a
wide range of
assets and
markets to make
large bets on price
movements
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Drawbacks
and Risks

In OTC markets,
there is a risk that
a counterparty
will default on
their obligations
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THANK YOU



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