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The Future of the Commodity Market in Pakistan
Posted by: Shariq (IP Logged)
Date: June 7, 2012 10:13AM

Today everyone is talking about derivative instruments as not only a source of hedging but also a profit-making instrument. And in derivatives the most frequently used instruments around the world are futures, maybe because they are simple and easily understood by masses. By definition futures are basically contracts which give the obligation to buy or sell the underlying asset at a predetermined price which is set today, and the transaction is settled at a future date. Future contracts are obligatory contracts so they have to be realized in any case. When we say underlying asset, that underlying asset could be anything. When it is a commodity (goods which have demand), then it becomes a commodity future.

Currently in Pakistan, commodity futures are still in the preliminary stage, but there is a formal exchange for commodity futures with the name of “Pakistan Mercantile Exchange.” The Pakistan Mercantile Exchange offer futures in gold, silver, crude oil, palm oil, rice and sugar.

There are different types of contracts of commodity futures available for each category. For instance, gold has eight contracts, namely Gold 1 ounce, Gold 100 ounce, Gold 1 tola, Gold 50 tola, Gold 100 tola, Gold kilo, Gold 100 gms and Minigold 10 gms. Tola gold and mini gold are deliverable contracts.

Nowadays, the news in the market is that soon in Pakistan, there will be futures available for virtually all the commodities, especially of consumer commodities. Now this makes commodity futures even more attractive and dangerous. Pakistan is a country with double-digit inflation, so in a country like Pakistan commodity futures would be like a gamble. It might pay off or it might not.

Pakistan is facing double-digit inflation consistently for the last three years and the trend is expected to be continuing given political, economical and social conditions in the country, and the overall world economic downturn has also affected the inflation rate in Pakistan. So Commodity futures have a great potential in Pakistani environment as the high rate of inflation encourages people to buy and sell future contract of commodities because of expected loss is quite high. Hence Commodity futures are expected to be traded in large volume on the exchanges and OTC market in Pakistan, which opens up a large opportunity for investors and speculators.

Read more about Pakistan's economy at the purpose of this site is to educate most people who likely know very little about the world’s 6th largest country by population. Pakonomy covers everything you need to know about Pakistan’s economy.

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