This article sheds visible radiation on the potency of trade good derived functions in Pakistan.
It explores the critical success factors and it’s negative effects given the overall Pakistani Environment.Today everyone is speaking about derivative instruments as non merely a beginning of fudging but besides a net income devising instrument and in derived functions the most often used instruments around the universe are hereafters. may be because of its simpleness and easy understood by multitudes. By definition hereafters are fundamentally Contracts which gives the duty to purchase or sell the implicit in plus at a preset monetary value which is set today and the dealing will be settled at a hereafter day of the month. Future contract are obligatory contracts so they have to be realized in any instance. When we say implicit in plus. that implicit in plus could be anything and when it is trade good ( Goods which have demand ) so it becomes a trade good hereafters ( Carter. 2007 ) .
This article argues why trade good hereafters have a great potency in Pakistan and it besides examine the effects of trade good hereafters on the overall market ( Teweles et. Al. 1974 ) . Presently in Pakistan. trade good hereafters are still in preliminary phase but there is a formal exchange for trade good hereafters with a name of ?Pakistan Mercantile Exchange. Pakistan Mercantile Exchange offer hereafters in Gold. Silver. Crude Oil.
Palm Olien. Rice and Sugar and their are different types of contracts of trade good hereafters available for each class like in gold has eight contracts viz. Gold 1 ounce. Gold 100 ounce. Gold 1 Tola.
Gold 50 Tola. Gold 100 tola. Gold Kilo. Gold 100 gram. and Minigold 10 gram. Tola gold and minigold are deliverable contracts ( Herbst. 1986 ) .Now a twenty-four hours the intelligence in the market is that shortly in Pakistan.
there are hereafters available virtually for all the trade goods particularly of consumer trade goods. now this brand trade good hereafter even more attractive and unsafe. Pakistan is a state with dual digit rising prices so in a state like Pakistan trade good hereafters would be like a gamble.
it might pay off or it might non ( Parameswaran. Shantaram. 2007 ) . The point that I want to do here is that trade good hereafters possible or attraction can good be step from any state monetary value instability/volatility. which in merely linguistic communication means country’s rising prices rate as when the monetary values of trade goods are fluctuating so people would be more inclined towards purchasing and selling future contract to fudge their market hazard. On the other manus when there is monetary value stableness so future contracts are merely useless ( Gold. 1975 ) .
So. when we talk about judging potency of trade good hereafters in Pakistan. we need to see the monetary value instability of trade goods in Pakistan and the best manner to judge monetary value instability of Consumer goods in Pakistan is to detect the rising prices of consumer CPI ( Consumer Price Index ) because in Pakistan people would be more attracted to purchase trade good hereafters related to nutrient point as nutrient rising prices is a major subscriber to the overall rising prices in Pakistan ( Miner.
2009 ) . Pakistan is confronting dual digit rising prices systematically for the last three old ages and the tendency is expected to be go oning given political. economical and societal conditions in the state and the overall universe economic downswing has besides affect the rising prices rate in Pakistan. Following graph clearly shows the rising prices tendency in Pakistan since 1980 and without any uncertainty we can state that Pakistan is confronting huge inflatory jobs at least from last three old ages ( Goss. 2008 ) .
So Commodity hereafters have a great potency in Pakistani environment as the high rate of rising prices encourages people to purchase and sell future contract of trade goods ( largely nutrient related points ) because of expected loss is rather high. Hence Commodity hereafters are expected to be traded in big volume on the exchanges and OTC market in Pakistan. which opens up a big chance for investors and speculators.
The expected net income on trade good hereafters on different consumer goods particularly nutrient related points which are most likely related to high nutrient rising prices. as a consequence investors would be more willing to buy/sell the trade good hereafters related to nutrients as already discussed that the major subscriber to rising prices in Pakistan is nutrient rising prices ( Teweles et. Al.
1974 ) . But there are two concerns that may originate because of this expected addition in the volume of future contracts on trade goods to be traded ( Hull. 2005 ) :1.
Due to big net income chance speculators might leap into the market and which makes the monetary values of consumer goods go even more unstable. 2. When big figure of speculators would leap into the market.
regulative concerns would besides originate to salvage market from the meddling of speculators. So. Commodity hereafters do hold a great potency in Pakistan environment but I have some serious concerns about it every bit good. When investors view trade good hereafter market more attractive so they would be more inclined to put in it so that guess additions.
and this guess increases the opportunities of psychological rising prices on different good. The ground behind why I am merely concerned about the psychological rising prices and non deflation is because. here in Pakistan. more investors would put their money in trade good hereafters anticipating the monetary value of certain trade good to travel up and when more and more investor are convinced that the monetary values will travel up instead than travel down so the monetary values will travel up and the market mechanism will be disrupted.This article propagates that the investors would see trade good hereafters as a really moneymaking and less hazardous instrument in the context of Pakistan. Because.
here in Pakistan the monetary values of trade goods ( particularly consumer goods ) are continuously following an upward tendency and this uptrend tendency would coerce the investor to ever theorize the monetary values of trade goods to travel up. This guess will interrupt the market mechanism and would take to psychological rising prices every bit far as most of the consumer goods are concerned. Finally. I want to reason that any state attraction or potency for trade good hereafter depends upon its monetary value volatility or rising prices ( CPI for consumer trade goods ) and when we see Pakistan’s instance so we can safely state that trade good hereafters do hold really bright chances. But everything has a cost ; trade good hereafters attractiveness would give rise to the regulative concerns and market imperfectness because of speculators ( Hull. 2008 ) .
MentionsGold. G. ( 1975 ) . Modern trade good hereafters trading ( 7th rpm. erectile dysfunction. ) . New York: Commodity Research Bureau. Herbst.
A. F. ( 1986 ) .
Commodity hereafters: markets. methods of analysis. and direction of hazard.
New York: Wiley. Teweles. R. J.
. Harlow. C. V. . & A ; Stone.
H. L. ( 1974 ) . The trade good hereafters game: who wins? Who loses? Why? . New York: McGraw-Hill. Barry Goss ( 2008 ) . Debt. Hazard and Liquidity in Futures Markets.
Routlege John Hull ( 2008 ) . Fundamentalss of Futures and Options Markets Pearson Prentice Hall John Hull( 2005 ) . Options.
Futures. and Other Derived functions. 6th erectile dysfunction. Prentice Hall Robert C.
Miner ( 2009 ) . High Probability Trading Schemes: Entry to Exit Tacticss for the Forex. Futures. and Stock Markets Wiley Sunil K. Parameswaran and Shantaram ( 2007 ) . Hegde. Futures Markets: 200 Questions & A ; Answers.
Wiley Colin Andre Carter ( 2007 ) . Futures and Options Markets: An Introduction. Waveland Press