ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Commodities are basic goods that are used in daily life. They may include food grain, oil, cotton, and metals, among many other physical substances. For an investor, commodities also represent an alternative avenue for investment.

Detailed explanation-2: -Commodities are raw materials that are either consumed directly, such as food, or used as building blocks to create other products.

Detailed explanation-3: -If the producer expects that there is a rise in price of a commodity in future then supply will be more in future hence supply will be more elastic when future prices rises and vice versa.

Detailed explanation-4: -Just like equity securities, commodity prices are primarily determined by the forces of supply and demand in the market. 2 For example, if the supply of oil increases, the price of one barrel decreases. Conversely, if demand for oil increases (which often happens during the summer), the price rises.

Detailed explanation-5: -Generally speaking, commodities trade either in spot markets or derivatives markets. Spot markets are also referred to as “physical markets” or “cash markets” where buyers and sellers exchange physical commodities for immediate delivery. Derivatives markets involve forwards, futures, and options.