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Sunanda K. Chavan
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EXPERENTIAL SURVEY - October 19th, 2010

EXPERENTIAL SURVEY

After the telephonic interview with Mr. Saptak who is a head of Research and development department of MCX, has replied to a structured questionnaire i.e. as follows:

10.3.a What do you think about volatility of Indian Commodity Market?
Mr. Saptak: volatility depends upon the seasonal and demand-supply factor. It can be less, moderate or even most volatile according to these factors.

10.3.b Which derivative tool (or contract) will be better in Commodity Market?
(i) Option (ii) Future (iii) Forward
Mr. Saptak: every tool has its own advantage and disadvantage hence we cant say which derivative tool will be better. Even its uses also varies according to its features hence every tool is better towards its uses.

10.3.c Do you think it is feasible to bring “Options” in the Indian Commodity Market?
Mr. Saptak: Yes, It is feasible to introduce in the Indian Commodity Market, even FMC and various other commodity exchange (including MCX) had forwarded this request to the parliament as it should be amend in the law and it can be done if it is passed in the parliament.

10.3.d Can ‘option’ be use as a tool to curb the volatility of Indian Commodity Market?
Mr. Saptak: Yes, it can control the volatility of the commodity market to some extend.


10.3.e Do you think the trade volume in the Indian Commodity Market can be boosted with the introduction of option?

Mr. Saptak: Yes, there can be increase in the volume as the option player will also start to trade and even existing player can get more than one facility of hedging in this market. So surely there are chances of increase in the volume of trade.

10.3.f Is “Future” more risky than “option”?
Mr. Saptak: To a certain extent, yes, as in Option buyer has rights and the writer has obligation that means for buyer it is not so risky but in Future both the party will have obligation that means risk is there for both the parties.
10.3.g Will “option” help the farmers to take active participate?
Mr. Saptak: Yes, it will help farmers for hedging purpose so there can be more active participation from the farmers side.
10.3.h Do you think FMC should implement “options” in the Commodity Market?
Mr. Saptak: Yes, as I have all ready told you that the FMC had put forward the matter in the parliament so that it can be amended in the law and Options can be introduced.

10.3.i During this period of scanty rain, do you think options are the control tool for the situation?
Mr. Saptak: Yes, Option can help to stabilize the price which can control over all market scenarios.






11. FINDINGS

11.1 Majority of the people feel that volatility of commodity market is moderate.

11.2 Majority of the people believe that it will be better to trade if all the derivative tools are available as it will provide them with a wider choice of trading style.

11.3 According to the survey, many feel that it is feasible to implement options in the Indian Commodity Market

11.4 More than half of the respondents believe that option can be used to curb volatility in the Indian commodity market

11.5 Majority of the people believe that there will be a boost in the volume of trade with the introduction of options in the Indian commodity market.

11.6 Even though both future and options do not have counterparty risk, future is considered to have higher risk than options from the point of view of the investors as option is a right and not an obligation (i.e. for buyer of the options)

11.7 For farmers, option will be one of the best alternatives as they can avoid risk which exists in future. This will increase the participation of farmers in commodity market.

11.8 FMC should implement the options in the commodity market as majority of the people agree to it.

11.9 Majority of the people believe that the options can be a useful tool to control the current scenario of scanty rains.



11.10.a Forward contracts are more risky compared to Option and Future contracts as there is counterparty risk involved in forward contract.

11.10.b Future and Option can be seen in the exchange and hence can be speculated.

11.10.c Forward can be more customized when compared to Future and Option. As there is no third party like exchange involved in this contract it can be customized according to the buyer and seller needs.

11.10.d Forward gives more return than Future and Option. The returns for future and option may be less because of brokerage costs and tax.


11.11 As the alternative hypothesis is accepted, more than 50 % of people believe that option is feasible in the Indian commodity market.
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