How to Write a Compare and Contrast Essay Good Topics

Contents Creating an Outline How to Start How to Write a Compare and Contrast Essay Good Topic Ideas Example How to conclude Custom Essay Writing Service Help Learning how to write a compare and contrast essay is a rite of passage for many college students, as this essay type is one of the most common assignments in college, especially in the first year. Writing a compare and contrast essay helps students develop and improve upon skills such as critical reasoning, scientific argumentation, and organized systematic writing. The best essays of this type have a clear purpose, such as shedding light on a complex idea or clearing up misconceptions about a difficult topic. Another purpose might be illustrating how one subject is better than another or perhaps highlighting a new approach to thinking about something. The individual assignment will vary, of course, and each should come with its rubric. Pay close attention to the rubric, since it will outline what your teacher is looking for, and make sure you understand the assignment before you begin. If you have a question about the essay assignment, do not be afraid to ask your teacher for help. The compare and contrast essay format is similar to that of other essay types. The writer must state a thesis in the introduction, argue the thesis in the body, and then form a conclusion. However, with a compare and contrast essay, the goal is to show how one subject is similar to another (i.e., compare them), as well as how it is different (i.e., contrast them). Such an essay requires upfront planning to ensure the writer has a firm grasp on both subjects. One way to plan for a compare and contrast essay is to create a Venn diagram to show how two subjects are similar and different, such as this one. Here’s an example: You may find that you need to create several of these diagrams before you know what your thesis is and what your two subjects are. Be open to different possibilities. The first two subjects you diagram may not be the ones you want to compare and contrast in your essay, but creating that diagram may give you some useful ideas. Creating an Outline It would also be a good idea to create an outline before you begin writing. The outline is like a template that you can follow to keep your essay on track throughout the writing process, and it should include the introduction, body paragraphs, and conclusion. Here’s an example outline for a compare and contrast essay about the effects of energy drinks: Introduction (hints at supporting arguments for thesis): widespread use of energy drinks Thesis: Energy drinks are stimulating and easy to consume (and thus are both similar to a different from coffee/tea) but may be more akin to soft drugs in the long run Body (supporting arguments for thesis) Pros (how energy drinks are similar to and sometimes better than coffee or tea): enhancing, energy boosting, quick acting, portable Cons (how energy drinks are more dangerous than they are worth): regular and excessive consumption can lead to health concerns, negative side effects soon after consumption, addictive, exhaustion of nervous system Conclusion: Cons outweigh pros, as too many energy drinks can lead to druglike effects Now that you’ve compared and contrasted your subjects using a diagram, drafted a thesis, gathered some supporting evidence, and created an essay outline, you’re ready to get started writing. How to Start To start a compare and contrast essay, you will need to write a solid introduction that transitions into a clear and specific thesis sentence. The introductory paragraph should outline the topic you want to cover and provide insight into your main idea. It should mention what matters—the people, ideas, events, or other subjects you are going to compare and contrast in the body of your essay. In the introduction, include the necessary background information. Your introduction should be brief, but exhaustive. Before stating your thesis, you should provide a preview of your supporting arguments and positions, as your reader needs to understand why your subject matter is worth comparing and contrasting. Pay attention to the structure of your essay, and make sure it is balanced. For instance, if the whole essay will be three pages long, you should not spend two of them on the introduction. How to Write a Compare and Contrast Essay End your introduction with a thesis sentence. It will allow readers to grasp your opinion of the compared subject matters, and it will logically draw their attention to the main idea. In the thesis, provide one idea or a statement that unites both subject matters. Even if you have discovered more differences than similarities between your subject matters, you should be able to find at least one element that they have in common and include it as part of your main idea. In the body, present as much support for your thesis as you can. Support can come in the form of statistics, research results, interviews, or other sources. Some writers prefer to mention the evidential base in the thesis, but others prefer to wait until the body of the essay. Draw a conclusion at the end of your essay based on the similarities and differences you have presented throughout the paper. The conclusion should not introduce any new ideas but should bring closure to the paper. Also, guys from EssayPro have prepared a video guide on How to write a Compare and Contrast Essay: Good Topic Ideas A good compare and contrast essay topic often includes words such as â€Å"versus† (vs.) or â€Å"or,† and these words may be useful in the essay’s title as well. Below is a list of potential compare and contrast essay topics for college papers. Ten of these sample topics have â€Å"vs.† in the title, and ten have â€Å"or,† clearly indicating that the resulting essays will either compare and contrast two completely different subjects or clarify two positions on the same subject. Here is the list of possible topics for compare and contrast essay: Energy Drinks: Mind Boosters or Soft Drugs International Monetary Fund: Economic Investments or a Debt Pit Abortion: Life Saver or Death Sentence Online Courses: Waste of Time or a Key to Better Future Cell Phones: Vital Gadget or a Deadly Threat Homeopathy: Self-Deceptiveness or Real Treatment GMO: Famine Problem Solution or Poison Online Communication: True Friendship or Illusion of Emotional Bond Religion: Vestige of the Past or Salvation of Nations Plural Marriage: Way Out of Underpopulation or Flashback to Barbarian Times Edward Snowden vs. Julius Caesar Putin vs. Obama Orwell vs. Huxley Dita Von Tease vs. Bettie Page Bruce Lee vs. Chuck Norris Arnold Schwarzenegger vs. Sylvester Stallone Napoleon vs. Kutuzov Steve Jobs vs. Bill Gates Nikola Tesla vs. Thomas Eddison Jesus vs. Thor Related: How to Choose Essay Topics Example This example compare and contrast essay clarifies two positions on energy drinks. Notice that it does so by comparing and contrasting energy drinks with other types of caffeinated beverages. Energy Drinks: Mind Boosters or Soft Drugs Energy drinks in aluminum cans are relatively new for humankind, but stimulating substances were used centuries before aluminum cans were invented. Today, energy drinks seem to be a panacea for students during exams, white collar employees during deadline periods, night clubbers dancing all night long, athletes heading toward a record, drivers, and basically, everyone who is dog-tired and must stay awake and work hard. You drink a can, and then you are ready to go for several hours afterward. The producers of energy drinks say that the stimulation effect of their products is ultimately healthy, so they carry on producing new energy drinks all the time. If these drinks were so safe, why would legislators be going after them? Energy drinks: mind boosters or soft drugs? Let us get this all straightened out. Pros: They enhance brain activity when needed. The energy-boosting effects of coffee last mere 1-2 hours, while those of energy drinks last 3-4 hours. Moreover, most of them are aerated, which makes them work faster, and coffee does not get the same treatment. The aluminum can allow you to consume an energy drink in almost any situation: in the car, on the dance floor, in the school library, and so on. Coffee and tea are not always so portable. Cons: You should drink no more than two cans of an energy drink each day. Drinking more than that increases your risk of elevated blood pressure, high blood sugar levels, or both. It has been said that energy drinks fill you with energy, but that is simply not true. They work as a key to your inner energy reserves, helping you tap into your naturally stored energy. Later, you have to pay the price: insomnia, weariness, peevishness, and depression. The caffeine in energy drinks not only builds up an addiction if you drink more than two cans a day but also exhausts your nervous system. What conclusion can be drawn from these pros and cons? Obviously, there is nothing healthy about energy drinks. Their contents do not differ much from everyday tea, coffee, and cocoa. Moreover, they exhaust the energy reserves of our bodies. When the stimulating effect is over in three or four hours, a person goes for another can, turning into an energy drink addict, losing the ability to restore energy in a natural way. To my mind, the cons of energy drinks outweigh the pros. My verdict is that energy drinks are mind boosters in some critical situations, but you should not drink them on a regular basis, as they can take on a drug like quality and become soft drugs. Tokyo and Kyoto - Compare and Contrast Essay Sample One more video guidance on How to Write a Compare and Contrast Essay: How to conclude? As you saw in the example above, the conclusion of an essay should help the reader understand the writer’s point of view. In other words, the best essays have a conclusion that reminds the reader of the thesis and shows, through a summary of the paper’s findings, how the thesis is correct. The example compare and contrast essay, about energy drinks, uses the thesis that energy drinks are overused and can be seen as either mind boosters or â€Å"soft drugs.† The conclusion sums up the findings from the body of the essay and then uses those findings to provide an opinion, a direct answer to the thesis question of whether energy drinks help boost the mind or inhibit it like a drug. Custom Essay Writing Service Help Still not sure how to get started? That’s OK. EssayService can help. Order a custom essay from us, or take advantage of our paper editing or rewriting services. Whatever you need to achieve your best writing ever, you can buy it right here. Not convinced yet? 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SubSaharan Africa essays

SubSaharan Africa essays Cultural determinants of fertility 5 Women's Time, and Their Role in Rural Production and Household Maintenance Systems 7 Promoting Environmentally Sustainable Agriculture 8 Infrastructure Development and Settlement Policy 10 Africa's hopes for a better future depend in large part on improving the health of its people. Sub-Saharan Africa is experiencing a period of extraordinary change. Across the continent, policy reforms are contributing to dynamic economic growth. Greater political openness has strengthened the commitment of African governments to meeting the basic needs of their people. Despite these positive trends, sub-Saharan Africa faces a development challenge greater than any other region. Much of the continent's population remains desperately poor. With record numbers of adolescents entering their childbearing years, in less than three decades Africa's population is projected to double again from the current level of 620 million. Meanwhile, many African nations are struggling to provide health and education services to populations expanding at a small percent a year. In many countries, rapid population growth is contributing to degradation of the environment and undermining prospects for prosperity. Africa's hopes for a better future depend in large part on improving the health of its people. Better access to good quality reproductive health services, particularly family planning, is key to improving health status - especially for women. The reality of reproductive health in Africa, however, is far from ideal. Women begin child-bearing in their teens an d have an average of six children. Meanwhile, AIDS has struck hard in Sub-Saharan Africa, where roughly 1 in 10 adults - both men and women - are infected with HIV. Yet traditional attitudes favoring large families are changing rapidly, owing to the growth of cities, the rising cost of living and lower child death rates, among other factors. De...

Drugs for off-label use Essay Example | Topics and Well Written Essays - 500 words

Drugs for off-label use - Essay Example The use of off-label drugs is most common among oncology and pediatric patients due to the lack of appropriate medicines and therapies. In certain circumstances, the use of off-label medicines proved beneficial for children, especially when all the approved medicines fail to bring the desired results as in the case of cancer. American Cancer Society reveals that some of the chemotherapy medicines are approved for one type of cancer but it has the potential to cure the other types of tumors. Other example of beneficial use of off-label medicine is Beta-blockers. FDA approved it for the patients of high blood pressure but it proved in curing heart diseases also. But before prescribing the off-label drugs, it is the duty of medical practitioners to inform the parents or guardians of children about this very fact; and reveal the side effects that may occur. They should also inform the alternative remedies available with them. Besides, medical practitioners should inform the company or relevant medical authority about the adverse effects, if they occur. In the case of United States vs. Evers, the court even authorizes a medical practitioner to use off-label drugs if they were not contraindicated (Fauber, 2012). Some off-label drugs require extra care and attention when use in Pediatrics. Example includes diazepam rectal solution in children under 1 year (not licensed for age group), amiloride tablets in any children (formulation), or rectal injection of lorazepam for a child with an acute seizure (route). An example of unlicensed use is the preparation of a suspension from a tablet by the hospital

Nursing older people Essay Example | Topics and Well Written Essays - 1500 words

Nursing older people - Essay Example Falls were common with the elder group in acute facilities or aged care ones (Hill et al, 2007). The incidence was higher in the inpatient settings of the various institutions (Hill et al, 2007). In Australia, 38% of adverse events were made up of falls and international figures were similar (Hill et al, 2007). A CDC statistics had reported that falls were a leading cause of death among older adults in the US (2004). Fall prevention was of utmost necessity in a world where the older people were increasing dramatically, living into the 80s and 90s. The critical health care issue of elder abuse and neglect was one filled with dilemmas and problems for nurses. Nurses had to be aware of the causes for abuse, questions for screening and the symptoms as they were the best persons to help reduce the distressing effects. Ideally suited to detect and manage elder abuse and neglect, nurses who were regularly contacting them could identify the marks of abuse on the body of the elder or deduct t he underlying problem of abuse from the attitude of the person (Muehlbauer and Crane, 2006). The nurses were qualified to make physical and psychological assessments. Collaborative efforts with physicians and support services could be helpful in tackling the elder abuse. Authorisation of home health care or advice on hospital admission further elevated their role in handling the abused. Falls in acute care facility Impacts Head injury, soft tissue injury and fractures were the usual consequences of 30-40% of elderly falls (Hill et al, 2007). Psychological trauma in the form of negative effects could occur. The fear of falling again and anxiety troubled the elders (Hill et al, 2007). Prolonged hospitalization or moving into an acute care centre associated with increased costs became necessary (Oliver et al, 2004). The provider was worried over the drop in quality of care and a decreased functioning (Hill, 2007). The family and staff were distressed. Health resource expenditures were increased due to prolonged stay and additional diagnostic procedures and medicines (Hill et al, 2007)). Total cost of falls in the Australian Health Care System was found to be 2.1 million Australian dollars. A hospital in the US reported that hospital stay was 12 more days for fallers than the other patients controlled for age, gender and length of stay up to the fall (Hill et al, 2007) Implications of practice Prevention programmes had included core care plans (Healey et al, 2004) and multidisciplinary teamwork (Haines et al, 2004). An economic evaluation could help decision-makers and administrations in hospitals to provide ample resources for fall prevention moves. Hill had pointed out that costs did not only exist for hospital stay, they continued after discharge for more therapy and support services from the community (2007). The anxiety produced to the patient and care-giver could also be considered as costs. Risk factors were cognitive deficits, Parkinsonism, history of hip fractures and respiratory infections. McCarter-Bayer had indicated acute delirium states, problems of bowel and bladder control, dependence in daily living and disabilities (2005). Environmental, systemic factors, comorbidities, costing data for full research period also needed to be addressed. Identification of

Animals abuse Research Paper Example | Topics and Well Written Essays - 1250 words

Animals abuse - Research Paper Example Different people have different perspectives regarding this issue. Therefore, perception and attitudes towards this issue has been reflected in this research paper. Lastly, some solutions have been provided to overcome this ongoing issue. Animal abuse is referred to the human infliction of harm or suffering upon non-human animals, for purposes that are other than survival or self-defense. Majority of the cases related to animal abuse signifies the purpose of specific gain or violent nature of humans against animals. Animal rearing and killing of animals for obtaining food and fur also fall under the category of animal abuse. Based on several research reports and statistical data on animal abuse, it has been clear that on average every 30 seconds crime against animal is reported. The most terrifying fact is that majority of animal abuse related crimes go unreported, which signifies the inhuman nature of people. This research paper supports the thesis statement. Recent animal abuse statistics express a depressing and grave scenario to the suffering of animals by humans on a broader perspective. In the rural as well as the urban areas animals are tortured greatly and they are considered as normal in the eyes of people. Most of the animal abuse crimes go unreported, which shows the negligence against animals’ torture that is made by people. There are mainly two types of animal abuses i.e. active cruelty and passive cruelty. Passive cruelty has been very common form of animal abuse and it is includes lack of action from preventing suffering and pain of animals (Flynn 87. On the other hand active cruelty is the kind of animal abuse wherein humans cause trouble to animals intentionally, for a specific cause or for fun and amusement. Animal abuse has developed on a large scale as the requirement of meat and animal fur has increased rapidly in the world. The most common victims of animal abuse are dogs and cats. Based on an animal abuse sur vey conducted

Surveillance of US Citizens

Surveillance of US Citizens Will the technology that one day has been used to track enemies of the state and to haunt terrorists be used in domestic surveillance of the U.S citizens on U.S soils. Is it possible that we may see thousands of these drones roaming freely in the skies of the U.S . Actually, According to the federal Aviation Administration (FAA)’s expectations the U.S airspace is going to have over 30,000 drones moving freely in less than 20 years. The Usage of drones in domestic surveillance fuels the steaming debate taking place nowadays between advocates of full civil liberties and the proponents of stricter measures to track unlawful acts and especially the ones related to National security threats and terrorism. It also adds more to the controversy of whether the usage of these drones in domestic surveillance is considered a search that needs a warrant according to the U.S constitution’s 4th amendment or not. Due to the dynamism of science, everyday there is something new concernin g this technology. Surveillance drones have several types. They differ in the degree of sophistication and precision. Drones with the ability to see through walls may be available in the very near future. These developments just add more to the concerns over civil liberties and stimulate a legislative interference to end the controversy or at least try to. â€Å"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated†. These are the mere words of the constitution in its 4th amendment which forms the basic right of privacy for the U.S American people. In the light of this text, and the many Supreme Court rulings which were accordingly uttered, legislators should find their paths to a legislation which regulates the usage of drones on U.S soil and at the same time be compatible with the U.S constitution. In order to do that they should tackle more than one issue. First, Location of surveillance whether it’s in homes, backyards or public places or even the national borders of the country. Second, the sophistication of the technology used and its lawfulness and finally, the duration of surveillance. Starting with the location, according to the mentioned words from the constitution above and the Supreme court ruling in (Katz v. United States)[1],there is a direct relation between the location of surveillance and the assumption of privacy by the targeted person. In (Katz vs. United States) the court loudly set the perception that as long as the targeted person is not expecting to be publically seen or witnessed and as long as he/she took the considerations not to be seen then any surveillance or search performed without a warrant is considered unlawful. Thus In homes, privacy is expected by public and cannot be invaded unless there is a warrant. Regarding the curtilage of a private property, it is also considered a part of the property secured from unwarranted surveillance. Yet this does not negate the fact that curtilage can be seen and monitored by the naked eye and from several vantage points. As long as the action of monitoring does not involve sophisticated equipment and through a vantage point it is allowed without a warrant. In two main precedents of the Supreme Court (In California v. Ciraolo and In Florida v. Riley) the police officers received tips that both individuals were growing marijuana in their backyard. The officers flew an aero-plane few feets above their backyards where they saw with their naked eyes the action of growing unlawful substances. In both cases, this action was not considered a search that needs a warrant since officers saw the action and the convicted never tried to prevent the action of seeing and they did not assume privacy since the place was already exposed. By applying these two incident s on the usage of drones for surveillance it may be assumed that it would be reasonable enough to consider using them instead of launching planes to monitor an action. As a matter of fact, this assumption may be a bit far from truth simply since there is another factor which was not taken into consideration. This factor is the degree of expectancy by the suspect to be monitored. Due to the rarity of drones in the U.S skies nowadays (around 300 licenses), being watched by a drone would never be deemed by the public as an expected thing in the contrary to planes which normally travel over houses. This would raise questions around the legitimacy of the usage of drones in the first place. Finally, when it comes to the borders of the U.S, one of the main missions of the U.S government is to defend the U.S soil against any kind of attack or illegal entry of aliens or substances. The Supreme Court has been quite conservative when dealing with the issue of borders’ security. They consider it as a holy duty of the U.S law enforcement and army and they try as much as they can not to interfere. The usage of drones to monitor the borders would be of less controversy due to the deep need of all kinds of security measures to prevent the unlawful violations that take place almost daily on the borders nowadays. Regarding the technological breakthroughs each and every moment in the world of drones, a regulation that determines the level of sophistication accepted to be used is severely needed. These drones now have the ability to wander in the air for very long times and it is expected in the near future to theoretically have the ability to stay in air forever. The drones may be equipped with face recognition devices or even laser radars which may allow seeing through walls. On one side this may be good news for law enforcement institutions that things is going to be way easier in capturing the bad guys and would help in diminishing of the budgetary expenses. On the other hand it really raises a factual concern over the constitutionality of anticipating such technological developments or at least shows the need of a strict regulation of usage or things may get messy. As a legislative solution I see that the usage of drones on U.S soil in domestic surveillance should be considered an action of search that needs a warrant under the 4th amendment and any action of surveillance without a warrant should be considered unlawful. A warrant should be initiated according to tangible evidence or plausible suspicions that an individual/group is doing an action that is considered according to the U.S laws unlawful. The court should assess the suspicion and accordingly determine the duration by which after it the warrant expires with maximum of 30 days to be renewed according to new evidence or a probable cause. There may be some exceptions by which law enforcement may automatically respond by using drones without the need of warrants and these exceptions are as follows: The existence of an imminent danger that threaten the U.S borders and needs to be obstructed or monitored closely. By imminent danger illegal entry of aliens/ illegal substances / arms is mean t. Another exception would be in the case of emergencies like (natural disasters or fires etc†¦). Third exception would be a threat to the national security of the country assessed by the department of National security. The secretary of homeland security takes the decision of using the drones. In all exceptions stated above a warrant shall be initiated after 48 hours from the decision of using the drones. The legislative frame work above just offers a compromise between making use of such a fascinating technology and ensuring that civil liberties to the maximum extent possible are safe and sound. I would like to conclude with words of Justice Scalia (Associate Justice  of the  Supreme Court of the United States) which sums up the whole dilemma we’re living through here. He says and I quote† It would be foolish to contend that the degree of privacy secured to citizens by the fourth amendment has been entirely unaffected by the advance of technology †¦.. The question we confront today is what limits there are upon this power of technology to shrink the realm of guaranteed privacy. â€Å" [1] In Katz v. United States, decided in 1967, the Court held that an FBI agent’s use of a bug to listen to the private conversations of Mr. Katz while in a telephone booth violated his Fourth Amendment rights. Although he was in a public telephone booth and there was no physical invasion, the Court noted that what a person â€Å"seeks to preserve private, even in an area accessible to the public, may be constitutionally protected.

Eva Peron Essay -- essays research papers

Maria Eva Duarte was born on May 7, 1919 in Los Toldos Argentina. She was the youngest illegitimate child of Juan Duarte and his mistress Juana Ibarguen. Eva had a difficult childhood, her father had his own wife and children, and he gave Juana’s Ibarguen children his last name and would visit them once in a while. When Eva was seven her father died living them in very poor conditions, all the family, her mother and the five children lived in a tiny one room and in order to pay the rent and have something to eat Eva’s mother her sisters and herself had to work as cook’s for a rich and powerful family in Los Toldos. It was then that Eva got her fist close look at the very wealthy families who controlled Argentina. Eva would recall her childhood in her book "La Razon de MI Vida": *"I remember I was very sad for many days when I discovered that in the world there were poor people and rich people and the strange thing was that the existence of the poor did not cause me as much pain as the knowledge that at the same time there mere people who were rich". This was maybe one of the first time’s that Eva felt the injustice of the world, that she felt that there had something to be done for those who did not have enough to eat. In 1930 Juana Ibarguen decide to leave Los Toldos and left to Junin with all her family seeking for a better fortune. Evita had this dream of someday becoming an actress and she believed in herself saying that she indeed has vocation. She participated in some recitals and plays from school. By 1935 Eva had made up her mind of becoming a great actress. Just after her fifteen birthday Eva met a tango singer: Agustin Magaldi, who had come to Junin to give some presentations. Eva seeking her dream left with him to Buenos Aires. When she left to Buenos Aires, these were times of misery, unemployment and hunger in the country of Argentina. It was hard for her at the beginning; Evita would struggle for ten years leaving on a very low income. She would get some small parts on radio she was working in Belgrano Radio, and also some insignificant parts in theater. After ten years her luck started to change, she would climb her way up getting roles that made people start to recognize her as an a ctress; she also had some roles in a few movies. On January 15, 1944 an earthquake almost destroyed the city of San Juan, thous... ...nd her children as she called them, she would love this children a s her very own maybe because of the fact that she had not been able to have any. It was very impressive the way the people reacted, Argentina wept for days the great loss, thousands of people would stay in lines just to get a glance at her, and they would morn for her. Even Juan Peron was impressed and he would recall, I did not know they loved her this much! The people would ask the pope to convert Evita into a saint, this never happened, but to many tha was what she was a saint and that was what they called her; Santa Evita. Her body was embalssamed and was put on a display in December of 1974, in 1976 her body was returned to her family to be placed in a vault in Buenos Aires. BIOGRAPHY -‘EVA PERON" Nicholas Fraser. W.W. Norton & Co. N.Y. 1984 -"EVITA FIRST LADY" John Barnes. Grove Press, inc. N.Y. 1978 -"THE WOMAN WITH THE WHIP" Maria Flores. Doubleday and Co. N.Y 1952. -"EVA PERON, THE MYTHS OF A WOMAN" J.M. Taylor. The University of Chicago Press. 1979 -‘THE PERON ERA" Robert J. Alexander. Rusell & Rusell INC. 1965

A Long awaited Holiday

Gary Duckworth is the name he always was proud of. Listening to the alarm he opened his eyes, waking up to the bright sunny day ahead. He was more than happy to have the day off today as it was a business day for most of the world around. It was such an inner twist in which he was assigned to meet Miss. Siena for an interview. He has set everything ready at the office for him to be away from the desk. Gary came to the living room, his hands ached very energetic from the work out he had for his biceps last evening. Spending time at the gym was something he always longed for. He just flexed his biceps to have a look at them in the mirror and was extremely happy with the huge budges. He enjoyed the caresses of admiring curious eyes along with words and phrases of admiration as he move about in the crowed. He went to the phone and dialed the number of Siena; he needed to conform once again that she would be available at 9. 30 in the morning at parker’s office in down town Manhattan. Parker’s office is in one World Trade Centre on 95th floor. He has been there quiet few times, always with Siena. The thought of Siena made him glad and gave him a sense of fulfillment. The relationship which has started as just a friendship very soon found itself with a lot of new meanings. Very soon both couldn’t help seeing each other and started to miss each other more than anything. As their romantic life grew Siena grew towards being an organization than a person in the music industry. Gary chose the best attire he always thought was the white shirt with black pants and the suite. He took the train to down town Manhattan. The train ride was rather calm and easy. Very few souls were found seated in the train as it was already past the rush hour. In about twenty minutes he would be at John street subway station and can walk over to the world trade centre. 2 He was walking out of the John street station when he thought of the day ahead though it was an official meeting the rest of the day e is going to be with Siena, he was going to make sure that this is going to be a holiday in all its sense. He was walking up the stairs when he noticed that all the people out at the street were looking upward in shock or rather in curiosity. He came out and found one of the twine towers were on fire. The first thing came to his mind was that there might be an arsenal accident in one of the offices. He did not want to waist the time standing on the ground and watching the fire. He wanted to go fast and meet Siena as soon as possible. She might be worried. He heard some one saying ‘might have been an accident’; it made no sense again to ask what is it. As he walked, there was the big bang, the earth shook, Gary just could not realize what was it but he could recognize the roar of people following the big noise and he could make out some thing from the crowed that ‘it is on purpose’†¦Ã¢â‚¬ ¦ ‘some on is doing it’†¦Ã¢â‚¬ ¦ ‘they are targeting us’. Who are they? Gary never knew. It was not the safest and joyful downtown any more. Gary in no time found himself in a Warfield of innocent civilians running for life not knowing in the concrete jungles where to hide. Gary became one of them in number, ran for his life and stumped up on some thing soft†¦wasn’t it a girl fallen on the street †¦Ã¢â‚¬ ¦. ho knows. Run, run and run with the crowds. The objects with fire are flowing from the towers, wind taking them all around even worse that is targeting us? What are they doing? Do they want me to be dead? Who do the want to terminate? What are they up to? Will there be yet another explosion and one of these high raisers may fall on me too? My God where is Siena? He looked up to the burning towers and saw the birds flying out from there but those black and white birds did not fly off. Rather just shot themselves down and splashed on the floor in red. He needed answers where is †¦.?

Commodity Market in India Essay Example

Commodity Market in India Essay Example Commodity Market in India Essay Commodity Market in India Essay 1. Commodity and Commodities market 1. 1 INTRODUCTION India, a commodity based economy where two-third of the one billion population depends on agricultural commodities, surprisingly has an under developed commodity market. Unlike the physical market, futures markets trades in commodity are largely used as risk management (hedging) mechanism on either physical commodity itself or open positions in commodity stock. For instance, a jeweller can hedge his inventory against perceived short-term downturn in gold prices by going short in the future markets. The article aims at knowhow of the commodities market and how the commodities traded on the exchange. The idea is to understand the importance of commodity derivatives and learn about the market from Indian point of view. In fact it was one of the most vibrant markets till early 70s. Its development and growth was shunted due to numerous restrictions earlier. Now, with most of these restrictions being removed, there is tremendous potential for growth of this market in the country. 1. 2 COMMODITY A commodity may be defined as an article, a product or material that is bought and sold. It can be classified as every kind of movable property, except Actionable Claims, Money Securities. Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. In fact, the size of the commodities markets in India is also quite significant. Of the countrys GDP of Rs 13, 20,730 crore (Rs 13,207. 3 billion), commodities related (and dependent) industries constitute about 58 per cent. Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities market grows many folds here on. . 3 COMMODITY MARKET Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz. , precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their comm odity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market. Table: 1 Turnover in Financial Markets and Commodity Market (Rs in Crores) S No. Market segments 2002-03 2003-04 2004-05 (E) 1Government Securities Market 1,544,376(63)2,518,322(91. 2)2,827,872(91) 2Forex Market 658,035(27)2,318,531(84)3,867,936(124. 4) 3Total Stock Market Turnover (I+ II) 1,374,405(56)3,745,507(136)4,160,702(133. 8) I National Stock Exchange (a+b) 1,057,854(43)3,230,002(117)3,641,672(117. 1) a)Cash 617,989 1,099,534 1,147,027 b)Derivatives 439,865 2,130,468 2,494,645 II Bombay Stock Exchange (a+b) 316,551(13)515,505(18. 7)519,030(16. 7) a)Cash314,073 503,053 499,503 b)Derivatives2,478 12,452 19,527 4Commodities Market NA 130,215(4. )500,000(16. 1) Note: Fig. in bracket represents percentage to GDP at market prices Source: Sebi bulletin 1. 4 Its EVOLUTION IN INDIA Bombay Cotton Trade Association Ltd. , set up in 1875, was the first organized futures market. Bombay Cotton Exchange Ltd. was established in 1893 following the widespread discontent amongst leading cotton mill owners and merchants over functioning of Bombay Cotton Trade Association. Th e Futures trading in oilseeds started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried on futures trading in groundnut, castor seed and cotton. Futures trading in wheat was existent at several places in Punjab and Uttar Pradesh. But the most notable futures exchange for wheat was chamber of commerce at Hapur set up in 1913. Futures trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was established in 1919 for futures trading in raw jute and jute goods. But organized futures trading in raw jute began only in 1927 with the establishment of East Indian Jute Association Ltd. These two associations amalgamated in 1945 to form the East India Jute Hessian Ltd. to conduct organized trading in both Raw Jute and Jute goods. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards Markets Commission (FMC) was established in 1953 under the Ministry of Consumer Affairs and Public Distribution. In due course, several other exchanges were created in the country to trade in diverse commodities. 1. 5 Structure of Commodity Market 1. 6 Different types of commodities traded World-over one will find that a market exits for almost all the commodities known to us. These commodities can be broadly classified into the following: Precious Metals: Gold, Silver, Platinum etc Other Metals: Nickel, Aluminum, Copper etc Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds. Soft Commodities: Coffee, Cocoa, Sugar etc Live-Stock: Live Cattle, Pork Bellies etc Energy: Crude Oil, Natural Gas, Gasoline etc 1. 7 Different segments in Commodities market The commodities market exits in two distinct forms namely the Over the Counter (OTC) market and the Exchange based market. Also, as in equities, there exists the spot and the derivatives segment. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer, processor, wholesaler etc. Derivative trading takes place through exchange-based markets with standardized contracts, settlements etc. 1. 8 Leading commodity markets of world Some of the leading exchanges of the world are New York Mercantile Exchange (NYMEX), the London Metal Exchange (LME) and the Chicago Board of Trade (CBOT). 1. 9 Leading commodity markets of India The government has now allowed national commodity exchanges, similar to the BSE NSE, to come up and let them deal in commodity derivatives in an electronic trading environment. These exchanges are expected to offer a nation-wide anonymous, order driven, screen based trading system for trading. The Forward Markets Commission (FMC) will regulate these exchanges. Consequently four commodity exchanges have been approved to commence business in this regard. They are: Multi Commodity Exchange (MCX) located at Mumbai. National Commodity and Derivatives Exchange Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore. National Multi Commodity Exchange (NMCE) located at Ahmedabad. Turnover on Commodity Futures Markets (Rs. In Crores) Exchange2003-042004-05 FIRST Half NCDEX149054011 NBOT5301451038 MCX245630695 NMCE238427943 ALL EXCHANGES129364170720 1. 10 Volumes in Commodity Derivatives Worldwide 2. Commodity Futures Trading in India 2. 1 INTRODUCTION Derivatives as a tool for managing risk first originated in the Commodities markets. They were then found useful as a hedging tool in financial markets as well. The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. However there are some features, which are very peculiar to commodity derivative markets. In the case of financial derivatives, most of these contracts are cash settled. Even in the case of physical settlement, financial assets are not bulky and do not need special facility for storage. Due to the bulky nature of the underlying assets, physical settlement in commodity derivatives creates the need for warehousing. Similarly, the concept of varying quality of asset does not really exist as far as financial underlyings are concerned. However in the case of commodities, the quality of the asset underlying a contract can vary largely. This becomes an important issue to be managed. . 2 Benefits to Industry from Futures trading. * Hedging the price risk associated with futures contractual commitments. * Spaced out purchases possible rather than large cash purchases and its storage. * Efficient price discovery prevents seasonal price volatility. * Greater flexibility, certainty and transparency in procuring commodities would aid bank lending. * Facilitate informed lending. * Hedg ed positions of producers and processors would reduce the risk of default faced by banks. * Lending for agricultural sector would go up with greater transparency in pricing and storage. Commodity Exchanges to act as distribution network to retail agri-finance from Banks to rural households. * Provide trading limit finance to Traders in commodities Exchanges. 2. 3 Benefits to Exchange Member * Access to a huge potential market much greater than the securities and cash market in commodities. * Robust, scalable, state-of-art technology deployment. * Member can trade in multiple commodities from a single point, on real time basis. * Traders would be trained to be Rural Advisors and Commodity Specialists and through them multiple rural needs would be met, like bank credit, information dissemination, etc. . 4 Why Commodity Futures? One answer that is heard in the financial sector is we need commodity futures markets so that we will have volumes, brokerage fees, and something to trade. I t hink that is missing the point. We have to look at futures market in a bigger perspective what is the role for commodity futures in Indias economy? In India agriculture has traditionally been an area with heavy government intervention. Government intervenes by trying to maintain buffer stocks, they try to fix prices, and they have import-export restrictions and a host of other interventions. Many economists think that e could have major benefits from liberalization of the agricultural sector. In this case, the question arises about who will maintain the buffer stock, how will we smoothen the price fluctuations, how will farmers not be vulnerable that tomorrow the price will crash when the crop comes out, how will farmers get signals that in the future there will be a great need for wheat or rice. In all these aspects the futures market has a very big role to play. If you think there will be a shortage of wheat tomorrow, the futures prices will go up today, and it will carry signals back to the farmer making sowing decisions today. In this fashion, a system of futures markets will improve cropping patterns. Next, if I am growing wheat and am worried that by the time the harvest comes out prices will go down, then I can sell my wheat on the futures market. I can sell my wheat at a price, which is fixed today, which eliminates my risk from price fluctuations. These days, agriculture requires investments farmers spend money on fertilizers, high yielding varieties, etc. They are worried when making these investments that by the time the crop comes out prices might have dropped, resulting in losses. Thus a farmer would like to lock in his future price and not be exposed to fluctuations in prices. The third is the role about storage. Today we have the Food Corporation of India, which is doing a huge job of storage, and it is a system, which in my opinion does not work. Futures market will produce their own kind of smoothing between the present and the future. If the future price is high and the present price is low, an arbitrager will buy today and sell in the future. The converse is also true, thus if the future price is low the arbitrageur will buy in the futures market. These activities produce their own optimal buffer stocks, smooth prices. They also work very effectively when there is trade in agricultural commodities; arbitrageurs on the futures market will use imports and exports to smooth Indian prices using foreign spot markets. In totality , commodity futures markets are a part and parcel of a program for agricultural liberalization. Many agriculture economists understand the need of liberalization in the sector. Futures markets are an instrument for achieving that liberalization. ***************************************************************************************************************************************************** Sagging Agricultural Commodity Exchanges Growth Constraints and Revival Policy Options Commodity derivatives have a crucial role to play in managing price risk especially in agriculture dominated economies. However, as long as prices of many commodities are restrained to a certain extent by government intervention in p roduction, supply and distribution, forward and futures markets for hedging price risk in those commodities have only limited practical relevance. A review of the nature of institutional and policy level constraints facing this segment calls for more focused and pragmatic approach from the government, the regulator and the exchanges for making the agricultural futures market a vibrant segment for risk management. K G Sahadevan Instability of commodity prices has always been a major concern of the producers as well as the consumers in an agriculture dominated country like India. Farmers’ direct exposure to price fluctuations, for instance, makes it too risky for them to invest in otherwise profitable activities. There are various ways to cope with this problem. Apart from increasing stability of the market by direct government intervention thwarting the market mechanism, various actors in the farm sector can better manage their activities in an environment of unstable prices through derivative markets. These markets serve a risk-shifting function, and can be used to lock-in prices instead of relying on uncertain price developments. Derivatives like forwards, futures, options, swaps, etc, are extensively used in many developed and developing countries in the world. The Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, International Petroleum Exchange, London, London Metal Exchange, London Futures and Options Exchange, ‘Marche a Terme International de France’, Sidney Futures Exchange, Singapore International Monetary Exchange, Singapore Commodity Exchange, Kuala Lumpur Commodity Exchange, ‘Bolsa de Mercadorias Futuros’ (in Brazil); the Buenos Aires Grain Exchange, etc, are some of the leading commodity exchanges in the world engaged in trading of derivatives in commodities. Even in China during the last 10 years of liberalisation of internal market many exchanges were set up for exclusive trading in commodity futures and most of them like Shanghai Metals Exchange; China Commodity Futures Exchange; China Zhengzhou Commodity Exchange, Beijing Commodity Exchange, etc, have witnessed tremendous growth [UNCTAD 1998]. However, they have been utilised on a very limited scale in India. The objective of this paper is to bring to focus the problems and prospects of the futures market in agricultural commodities in India. On the basis of visit to some of the recognised commodity exchanges (see the list in Table 2) the study identifies bottlenecks in the organisational, trading and regulatory set-up of these exchanges and recommends certain broad policy alternatives for the revival of commodity exchanges in general. Historical Perspective Although India has a long history of trade in commodity derivatives, this segment remained underdeveloped due to government intervention in many commodity markets to control prices. The production, supply and distribution of many agricultural commodities are still governed by the state and forwards and futures trading are selectively introduced with stringent controls. While free trade in many commodity items is restricted under the Essential Commodities Act (ECA), 1955, forward and futures contracts are limited to certain commodity items under the Forward Contracts (Regulation) Act (FCRA), 1952. The first commodity exchange was set up in India by Bombay Cotton Trade Association and formal organised futures trading started in cotton in 1875. Subsequently, many exchanges came up in different parts of the country for futures trade in various commodities. The Gujarati Vyapari Mandali came into existence in 1900 which has undertaken futures trade in oilseeds first time in the country. The Calcutta Hessian Exchange and East India Jute Association were set up in 1919 and 1927 respectively for futures trade in raw jute. In 1921, futures in cotton were organised in Mumbai under the auspices of East India Cotton Association (EICA). Many exchanges were set up in major agricultural centres in north India before world war broke out and they were mostly engaged in wheat futures until it was prohibited. The existing exchanges in Hapur, Muzaffarnagar, Meerut, Bhatinda, etc, were established during this period. The futures trade in spices was first organised by India Pepper and Spices Trade Association (IPSTA) in Cochin in 1957. Futures in gold and silver began in Mumbai in 1920 and continued until it was prohibited by the government by mid-1950s. Though options are permitted now in stock market, they are not allowed in commodities. The commodity options were traded during the pre-independence period. Options on cotton were traded until they along with futures were banned in 1939 [Ministry of Food and Consumer Affairs 1999]. However, the government withdrew the ban on futures with passage of FCRA in 1952. The act has provided for the establishment and constitution of Forward Markets Commission (FMC) for the purpose of exercising the regulatory powers assigned to it by the act. Later, futures trade was altogether banned by the government in 1966 in order to have control on the movement of prices of many agricultural and essential commodities. After the ban of futures trade all the exchanges went out of business and many traders started resorting to unofficial and informal trade in futures. On recommendation of the Khusro Committee in 1980 government reintroduced futures on some selected commodities including cotton, jute, potatoes, etc. As part of economic liberalisation of 1990s an expert committee on forward markets under the chairmanship of K N Kabra was appointed by the government of India in 1993. Its report submitted in 1994 recommended the reintroduction of futures which were banned in 1966 and also to widen its coverage to many more agricultural commodities and silver. In order to give more thrust on agricultural sector, the National Agricultural Policy 2000 has envisaged external and domestic market reforms and dismantling of all controls and regulations in agricultural commodity markets. It has also proposed to enlarge the coverage of futures markets to minimise the wide fluctuations in commodity prices and for hedging the risk arising from price fluctuations. In line with the proposal many more agricultural commodities are being brought under futures trading. The Present Status Presently, 15 exchanges are in operation in India carrying out futures trading in as many as 30 commodity items (details are given in Table 1). Out of these, two exchanges, viz, IPSTA, Cochin and the Bombay Commodity Exchange (BCE) have been recently upgraded to international exchanges to deal in international contracts in pepper and castor oil respectively. Moreover, permission has been given to another two exchanges, viz. The First Commodities Exchange of India, Kochi (for copra/coconut, its oil and oilcake), and Keshav Commodity Exchange, Delhi (for potato), where futures trading is expected to start soon. Another eight new exchanges are proposed to set up and some of them are expected to start operation shortly. The government has also permitted four exchanges, viz, EICA, Mumbai; Central Gujarat Cotton Dealers Association, Vadodara; South India Cotton Association, Coimbatore; and Ahmedabad Cotton Merchants Association, Ahmedabad, for conducting NTSD contracts (explained below) in cotton. Lately, as part of further liberalisation of trade in agriculture and dismantling of ECA, 1955 futures trade in sugar has been permitted and three new exchanges, viz, e-Commodities, Mumbai; NCS Infotech, Hyderabad; and e-Sugar India. Com, Mumbai, have been given approval for conducting sugar futures [Ministry of Food and Consumer Affairs 1999]. Table 1:Profile of Commodity Futures Exchanges ExchangeActive MembersCommodity TradedVolume in Lakh Tonnes (Value in Rs Crore) 199920002001 1996-971997-981998-991999-002000-01 India Pepper and Spice Trade Association, Cochin554231Pepper0. 86 (765) 1. 56 (2834) 1. 73 (3411) 1. 24 (2862) 1. 29 (2580) -37Pepper(intl)007 (15) 0. 40 (106) 0. 02 (5. 6) The Bombay Cpmmodity Exchange, Mumbai865Castor seed2. 53 (279) 0. 25 (30) 0. 11 (17) 0. 9 (15) 0. 10 (14) 22Castor oil0. 04 (14)0. 01(5) -9-RBD Palmol-0. 04 (9) Kanpur Commodity Exchange, Kanpur-85Mustard seed, oil and cake-0. 108 (14) The EAst India Cotton Association, Mumbai15177Cotton0. 02 (9) 0. 35 (143) 0. 21 (139) The Chamber of Commerce, Hapur363621Potato0. 79 (29) 1. 76 (56) 0. 09 (5) 0. 22 (5) 0. 52 (14) 263426Gur29. 28 (1655) 30. 10 (2760) 23. 85 (2162) 23. 79 (2236) 28. 80 (2555) Coffee Futures Exchange, Bangalore554Cof fee-0. 50 (289) Ahmedabad Commodity Exchange383655Castor seed54. 84 (5981) 68. 76 (8006) 44. 91 (6854) 30. 68 (5220) 24. 73 (3469) The Rajkot Seeds Oil and Bullion Mercehants Association128- 19. 85 (2167) 21. 36 (2495) 16. 77 (2562) 16. 35 (2811) 18. 94 (2761) National Board of Trade, Indore-4851Soy seed, oil and cake1. 093 (261) 32. 56 (7874) -4-Mustard seed and mustard oil-0. 13 (31) Vijai Beopar Chamber, Muzaffarnagar403535Gur40. 71 (2281) 44. 06 (3429) 61. 34 (9518) 47. 48 (4510) 31. 28 (2877) Bhatinda Om Oil and Oilseeds Exchange, Bhatinda161615Gur29. 81 (1936) 23. 60 (1896) 20. 41 (1813) 21. 88 (2263) 21. 24 (2060) The Meerut Agro Commodities Exchanges Co, Meerut101111Gur2. 45 (144) 3. 25 (248) 3. 58 304) 4. 1 (389) 3. 7 (311) The Rajdhani Oils and Oilseeds Exchange,Delhi172124Gur8. 51 (548) 28. 60 (2231) 4. 51 (383) 8. 24 (787) 7. 78 (668) The East India Jute and Heesian Exchange, Calcutta574071Sacking25. 21 (5022) 5. 58 (1234) 7. 88 (1703) 111Hessian41. 38 (15604) 26. 60 (7342) 2. 43 (569) 0. 003 (0. 81) 0. 0008 (0. 22) The Spices and Oilseeds Exchange, Sangli-37Turmeric0. 83 (149) 0. 81 (152) 0. 01 (6) 0. 0002 (0. 03) 0. 0002 (0. 21) Source: Forward Markets Commission, Mumbai A brief profile of the exchanges which are currently in operation has been presented in Table 1. Many of the existing exchanges have become weak in spite of considerable membership strength and potential for large volume of trade. Some of the observations drawn on the basis of visit to six of these exchanges have been presented later in the paper. The number of members who are actively involved in trading in all these exchanges is abysmally low. It is important to know why traders who in spite of setting up the exchange are not keen to participate in trading actively. It has been observed from many exchanges that trading was unprofitable and could not be relied on it as a full-time business. Any attempt to revive the exchanges and rejuvenate the futures market in India needs to address this issue first. It is interesting to note that even in case of commodities in which very active domestic and international ready market exists with volatile prices, futures trade in those commodities are no attraction to the merchandisers. The IPSTA located in Cochin which is known for futures trade in spices for over five decades has not attracted many traders. It is the only exchange in the world engaged in trading of futures in pepper. Kerala being the producer of lion’s share (around 95 per cent) of pepper in India and Cochin being the port city where a majority of pepper exporters are operating the existing futures exchange should have a larger role to play [UNCTAD 1995]. However, in spite of having more than 150 members in the exchange, only around 10 members’ cubicles in the trading ring were occupied by the respective representatives during the trading hour. A further inquiry into the issue reveals that these members hail from families which are into pepper trade for generations and no new member from outside has come into the business. It is not clear as to why members of the exchange are keen to retain the status of the exchange as a specialised single-commodity exchange. The BCE arguably the richest exchange in India in terms of its infrastructure, is also facing the problem of empty trading ring. Though the exchange has a membership strength close to 600, less than five members are trading actively. Data in Table 1 shows that the volume in castor seed futures declined from 2. 53 lakh tonnes during 1996-97 to just 10,000 tonnes during 2000-01. The EICA which is one of the oldest exchanges in the country has a different story to tell. Cotton has a long tradition of futures trading in India. Cotton futures started in 1857 and continued until it was suspended in 1966. Cotton has large potential for futures trading due to its uncontrolled and uncertain supply and variability of prices. While prices within a crop season fluctuate between 7. 5 and 26. 2 per cent in the last decade, its output varied as much as 14 per cent from one year to the next. It has a strong domestic and international market. India is the third largest producer and the second largest consumer of cotton in the world. Moreover, cotton is placed under OGL list with zero import duty, and quota system for its exports is likely to be dismantled by 2005. Nevertheless, the present status of cotton exchange and the Indian cotton futures contract is no different from other exchanges. Although the exchange has a membership strength over 400, not more than 10 members actively trade in the exchange. It is often argued by the exchange authorities that the government’s indirect control on supply and prices by its procurement makes the futures market in cotton unattractive and worthless. Futures market in many other commodities indeed shows that there is scope for the rejuvenation of this sector in the country. The buoyant trading activities in the newly started National Board of Trade at Indore, the old exchanges like the Chamber of Commerce, Hapur; Viajai Beopar Chamber, Muzaffarnagar; Ahmedabad Commodity Exchange; Bhatinda oil exchange; East India Jute Exchange, Calcutta, etc, are the indications of prospects of futures trade in agricultural commodities. Commodity Futures Contract Futures contracts are an improved variant of forward contracts. They are agreements to purchase or sell a given quantity of a commodity at a predetermined price, with settlement expected to take place at a future date. The futures contracts as against forwards are standardised in terms of quality and quantity, and place and date of delivery of the commodity. The commodity futures contracts in India as defined by the FMC has the following features [Forward Markets Commission 2000]: (a) Trading in futures is necessarily organised under the auspices of a recognised association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the rules and bye-laws of the association. (b) It is invariably entered into for a standard variety known as the ‘basis variety’ with permission to deliver other identified varieties known as ‘tenderable varieties’. c) The units of price quotation and trading are fixed in these contracts, parties to the contracts not being capable of altering these units. (d) The delivery periods are specified. (e) The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver goods, he can do so not only at the location of the association through w hich trading is organised but also at a number of other pre-specified delivery centres. (f) In futures market actual delivery of goods takes place only in a very few cases. Transactions are mostly squared up before the due date of the contract and contracts are settled by payment of differences without any physical delivery of goods taking place. The terms and specifications of futures contracts, however, vary depending on the commodity and the exchange in which it is traded. The relevant terms and conditions of contracts traded in six sample exchanges in India are presented in Table 2. These terms are standardised and applicable across the trading community in the respective exchanges and are framed to promote trade in the respective commodity. For example, the contract size is important for better management of risk by the customer. It has implications for the amount of money that can be gained or lost relative to a given change in price levels. It also affects the margins required and the commission charged. Similarly, the margin to be deposited with the clearing house has implications for the cash position of customers because it blocks working capital for the period of the contract to which he is a party. Organisational Set-up In the Indian context, the scope of commodity exchanges has been limited to futures trading. They are associations of members which provide all organisational support for carrying out futures trading in a formal environment. These exchanges are managed by a board of directors which is composed primarily of the members of the association. There are also representatives of the government and public nominated by FMC. The majority of members of the board have been chosen from among the members of the association who have trading and business interest in the exchange. The board appoints a chief executive officer who with his team assists the board in day-to-day administration of the exchange. There are different classes of members who capitalise the exchange by way of participation in the form of equity, admission fee, security deposits, registration fee, etc. They are classified as ordinary members, trading members, trading-cum-clearing members, institutional clearing members, and designated clearing bank. The membership requirements for and the composition of members, however, vary from one exchange to the other. In some exchanges there are exclusive clearing members, broker members and registered non-members in addition to the above category of members. Clearinghouse is the organisational set up adjunct to the futures exchange which handles all back-office operations including matching up of each buy and sell transactions, execution, clearing and reporting of all transactions, settlement of all transactions on maturity by paying the price difference or by arranging physical delivery, etc, and assumes all counterparty risk on behalf of buyer and seller. There is no clearinghouse in a forward market due to which buyers and sellers face counterparty risk. In a futures exchange all transactions are routed through and guaranteed by the clearinghouse which automatically becomes a counterpart to each transaction. It assumes the position of counterpart to both sides of the transaction by selling contract to the buyer and buying the identical contract from the seller. Therefore, traders obtain a position vis-a-vis the clearinghouse. It ensures default risk-free transactions and provides financial guarantee on the strength of funds contributed by its members and through collection of margins, marking-to-market all outstanding contracts, position limits imposed on traders, fixing the daily price limits and settlement guarantee fund. The organisational structure and membership requirements of clearinghouses vary from one exchange to the other. The BCE and IPSTA have set up separate independent corporations (namely, Prime Commodities Clearing Corporation of India, and First Commodities Clearing Corporation of India, respectively) for handling clearing and guarantee of all futures transactions in the respective exchanges. While Coffee Futures Exchange India (COFEI), Bangalore has a clearinghouse as a separate division of the exchange, many other exchanges like the Chamber of Commerce, Hapur; Kanpur Commodity Exchange (KCE) and EICA, Mumbai run in-house clearinghouses s part of the respective exchanges. The clearing and guaranty are managed in these exchanges by a separate committee (normally called the clearinghouse committee). Membership of clearinghouse requires capital contribution in the form of equity, security deposit, admission fee, registration fee, guarantee fund contribution in addition to networth requirement depending on its organisational structure. For example, in the BCE the minimum capital requirement for membership in its clearinghouse as applicable to trading-cum-clearing members is Rs 50,000 each towards equity and security deposit, Rs 500 as annual subscription, and additionally, members are required to have networth of Rs 3 lakh. Similarly, COFEI prescribes Rs 5 lakh each towards equity and guarantee fund contribution and Rs 40,000 towards admission fee for a trading-cum-clearing member. However, in exchanges where clearing house is a part of the exchange the payment requirements are lower. For example, KCE prescribes payment of only Rs 25,000, Rs 1,000 and Rs 500 towards security deposit, registration fee and annual fee respectively for a clearing-cum-trading member. Margins (also called clearing margins) are good-faith deposits kept with a clearinghouse usually in the form of cash. There are two types of margins to be maintained by the trader with the clearinghouse: initial margin and maintenance or variation margins. They have important bearing on the success of futures. As they are non-interest bearing deposits payable to the clearinghouse up-front working capital of the trading parties gets blocked to that extent. While a higher margin requirement prevents traders from participating in trading, a lower margin makes the clearinghouse financially weak and hence more vulnerable to default. Internationally, many developed exchanges maintain a low margin on positions due to their better financial strength along with massive volume of trade resulting in large income accruing to them. However, this has not been the case with many exchanges in India. For example, the initial margin liability for transacting the minimum lot size in pepper is Rs 30,000 for domestic contracts and US$ 312. 0 for international contracts. Similarly, the volume of transactions these clearinghouses deal in many exchanges in India is abysmally low making their existence financially unviable. For ensuring financial integrity of the exchange and for counterparty risk-free trade position (exposure) limits have been imposed on clearing members apart from mandatory margins. These limits which are stringent in some exchanges and are liberal in others are normally linked to the members’ contribution towards equity capital or security deposit or a combination of both and settlement guarantee fund. In the BCE exposure limit of a clearing member is the sum of 50 times the face value of contribution to equity capital of the clearinghouse and 30 times the security deposit the member has maintained with the clearinghouse. While COFEI prescribes the limit of 80 times the sum of member’s equity investment and the contribution to the guarantee fund, EICA has stipulated a liberal exposure limit on open positions. It has a limit of 200 and 1,500 units (recall that one contract unit is equivalent to 93. quintals of cotton) respectively for composite and institutional members. The IPSTA has fixed a net exposure limit of 60 units (equivalent to 1,500 quintals) for domestic contracts and 90 units (equivalent to 2,250 quintals) for international contracts. Moreover, the settlement guarantee fund helps clearinghouse to honour all payments in case any trader defaults. The KCE maintains a trade guarantee fund with a corpus of Rs 100 lakh while COFEI in addition to a guarantee fund has su bstituted itself as party to clear all transactions. Yet another check on the possible default is through prescribing maximum price fluctuation on any trading day which helps limit the probable profit/loss from each unit of transaction. The relevant data on permitted price limit has been presented in Table 2. It is clear from the table that the maximum profit/loss potential from trade in each contract unit varies from as low as Rs 800 for potato futures in Chamber of Commerce, Hapur to as high as Rs 15,000 for pepper in IPSTA. Similarly, given the permissible open position of 200 units for a trading-cum-clearing member and maximum price fluctuation of Rs 150 per 100 kg for cotton futures in EICA, the maximum potential loss/profit in a trading day works out to be Rs 28. 05 lakh. Regulation of Commodity Futures Merchandising and stockholding of many commodities in India have always been regulated through various legislations like FCRA 1952; ECA 1955 and Prevention of Blackmarketing and Maintenance of Supplies of Commodities Act (PBMSCA) 1980. The ECA 1955 gives powers to control production, supply, distribution, etc, of essential commodities for maintaining or increasing supplies and for securing their equitable distribution and availability at fair prices. Using the powers under the ECA, 1955 various ministries/departments of the central government have issued control orders for regulating production/distribution/quality aspects/movement, etc, pertaining to the commodities which are essential and administered by them. Currently, 29 commodity groups have been declared essential under the act. The PBMSCA 1980 targets the prevention of unethical trade practices like hoarding and blackmarketing, etc, in essential commodities. It is being implemented by state governments to detain persons who obstruct the supplies of essential commodities. The FCRA 1952 provided for three-tier regulatory system for commodity futures trading in India: (a) an association recognised by the government of India on the recommendation of FMC, (b) the FMC and (c) the central government (department of consumer affairs). Stock exchanges and futures markets being a part of the union list their regulation is the responsibility of the central government. All types of forward contracts in India are governed by the provisions of the FCRA, 1952. The act divides commodities into three categories with reference to extent of regulation, viz, (a) the commodities in which futures trading can be organised under the auspices of recognised association, (b) the commodities in which futures trading is prohibited and (c) the free commodities which are neither regulated nor prohibited. While options in goods are prohibited by the FCRA, 1952, the ready delivery contracts remain outside its purview. The ready delivery contract as defined by the act is the one which provides for the delivery of goods and payment of a price therefor, either immediately or within a period not exceeding 11 days after the date of the contract. All ready delivery contracts where the delivery of goods and/or payment for goods is not completed within 11 days from the date of the contract are forward contracts. The act classifies forward contracts into two: (a) specific delivery contracts and (b) other than specific delivery contracts or futures contracts. Specific delivery contract means a forward contract which provides for the actual delivery of specific qualities or types of goods during a specified time period at a price fixed thereby or to be fixed in the manner thereby agreed and in which the names of both the buyer and the seller are mentioned. The specific delivery contracts are of two types: transferable and non-transferable. The distinction between the transferable specific delivery (TSD) contracts and non-transferable specific delivery (NTSD) contracts is based on the transferability of the rights or obligations under the contract. Forward trading in TSD and NTSD contracts are regulated by FCRA 1952. As per the section 15 of the act every forward contract in notified goods (currently 36 commodity items) which is entered into except those between members of a recognised association or through or with any such member is treated as illegal or void. As per the section 17(1) of the act, 82 items are prohibited from entering into forward contract. The section 18(1) of the act exempts the NTSD contracts from the regulatory provisions. However, over the years the regulatory provisions of the act were applied to the NTSD contracts as well and 79 commodity items are currently prohibited from NTSD contracts under section 17 of the act. Moreover, another 15 commodity items are brought under the regulatory provisions of the section 15 of the act out of which trading in the NTSD contract has been suspended in 12 items. At present, the NTSD contracts in cotton, raw jute and jute goods are permitted only between, through or with the members of the associations specifically recognised for the purpose. Subsequent to the report of the Committee on Forward Markets (known as the Kabra Committee) submitted in 1994 the government has so far permitted futures trading in nearly 35 commodities under the auspices of 23 commodity exchanges located in different parts of the country. The commodities in which futures trading is permitted are: pepper, turmeric, gur, castorseed, hessian, jute sacking, cotton, potato, castor oil, soyabean and its oil and cake, coffee, mustardseed and its oil and oilcake, ground nut and its oil, sunflower oil, copra/coconut and its oil and oilcake, cottonseed and its oil and oilcake, kapas, RBD palmolein, rice bran and its oil and oilcake, sesame seed and its oil and oilcake, safflower seed and its oil and oilcake, and sugar. This list may get enlarged further with the repeal of ECA 1955 and with further liberalisation of farm sector as envisaged in the National Agricultural Policy 2000 and the Union Budget 2002-03. The exchanges are required to get prior approval of the FMC for opening of each contract in commodities which are notified under section 15 of the FCRA 1952. Regulation is essential especially in a private ownership and market-oriented system to ensure the necessary checks and balances in the system. However, stringent and continuous regulation for long period of time would do no good to the system. The initial stringent regulation should ensure that a foolproof and growth oriented control system in terms of set-up of the exchange and its sound management, a clearinghouse which can promote trade and its financial integrity, sound and facilitating contract terms and conditions, etc, is in place. The exchanges are already assumed to be self-regulatory agencies. Their role must get strengthened further along with FMC minimising its role as a facilitator making the existing regulation an ‘appropriate regulation’. Constraints and Policy Options Commodity exchanges in India are in their nascent stage of development. There are numerous bottlenecks in the growth of this particular segment in India. These problems are not unknown to the government and the FMC. The FMC has already coordinated a number of studies carried out by experts with funding from World Bank during 1999-00. An integrated report [Youssef 2000] of these wide ranging studies has highlighted several issues for the consideration of government and FMC. These institutional and policy level issues have to be addressed by the government and the FMC for rejuvenating the paralysed agricultural futures markets. Some of the major problems that handicap the commodity exchanges are discussed below [Sahadevan 2002a]. Constitution of exchanges: All commodity exchanges in India are mutual organisations. They are promoted by traders who carryout trading as well as keep the management control of exchanges. The exchange staff including the chief executive officer/secretary is the staff of promoters. This structure poses a serious threat to the integrity of exchanges. The structure needs to be altered so as to ensure an arms length relationship between those who promote and manage the exchange on the one hand and those who have trading interest in exchanges on the other. Many leading exchanges in the world like Chicago Mercantile Exchange, International Petroleum Exchange, and New York Mercantile Exchange, etc, are demutualised organisations where arms-length relationship between management and trading is maintained. The pepper exchange in Cochin is seriously considering change in its set up from a non-profit making organisation to a profit-making equity-based organisation with public participation. Trading parameters: The terms and conditions of contracts play a crucial role in the growth and development of trading in any exchange. They should be market friendly in the sense that the terms are affordable to large traders as well as small traders and should be attractive to all prospective beneficiaries of futures trading including growers, processors, merchandisers, consumers, etc. However, the contract specifications (as given in Table 2) in many exchanges are prohibitive to many segments. For example, the lot size of cotton contract in EICA is 55 bales which is equivalent to nearly 10 tonnes of cotton. Similarly, the costlier commodity like pepper for which the lot size fixed by the pepper exchange, Cochin is 2. 5 tonnes with 15 tonnes as deliverable quantity. Many such finer aspects of contracts can be pointed out which apparently seem to go against the wider interests of prospective beneficiaries of futures trading. One needs to really go into the micro details of these specifications before making any judgments as to how market friendly these contracts are. Notes: IM and SM represent initial margin and special margin respectively. Price limit and margins vary from time to time. 1 Delivery month of the contract. 2 Bench Mark Price is the average of the opening, highest, lowest and the closing prices of the first three trading days of commencement month of any contract. 3 Bench Mark Price is arrived at by taking the average of the opening, highest, lowest and closing prices of the commencement day of trading of any contract. 4 The official closing price (OCP) is the weighted average price of the trades executed during the last 30 minutes of the trading session. Gross Exposure (GE) means the sum total of net outstanding position. 6 Delivery month relating to international castor oil contracts and all other specifications are common for all commodities traded in Bombay Commodity Exchange. 7 The Bench Mark Price (BMP) is determined by taking the weighted average of the transacted price of all the contracts traded on the first five days of the contract. Source: Bye-Laws of the respective exchanges. Infrastructure: L ack of efficient and modern infrastructural facilities are bottlenecks in the growth of futures markets in India. Though some of the exchanges notably BCE and EICA own huge office premises, they lack necessary institutional infrastructure including warehousing facilities, independent clearing house in addition to modern trading ring. The KCE for example, lacks basic facilities to disseminate the trading information. The exchange has only a couple of small office rooms and a poorly maintained trading ring which seem to have never been utilised. Trading system: Most of the exchanges till date have open outcry system. Of the sample of six exchanges visited, only COFEI has introduced electronic trading system. The FMC has been emphasising the need for automation and on-line trading system for ensuring better transparency and fairness in trading practices. It has been observed that less than 10 per cent of members are only actively trading in these exchanges. Volume of trade has been consistently declining. In some exchanges, e g, KCE, the market is non-existent. An active and vibrant market is necessary for introducing electronic trading system. Steps have to be initiated for creating market and making the exchange financially sound for investing in automation and on-line trading. It has been noticed that after introducing computerised trading in COFEI, trade volume dropped substantially leaving a large financial burden on the exchange. Moreover, majority of trading members in some of the exchanges are not educated enough to handle English language and to operate computer. For example, most of the members of the Chamber of Commerce, Hapur said to have no working knowledge of English without which computerised trading is difficult. Therefore, the priority of FMC and exchanges should be the creation of a better environment for active trading. Computerisation can be second step once a vibrant market is in place. Broking community: Although a large number of members exist in the records of exchanges, most of them shy away from trading due to the fact that the business is not very profitable. It is essential to attract large-scale broking firms who have diversified into stock broking and other related businesses. Regulation including setting standards for brokers, imposing capital adequacy norms, qualification criterion, etc, would become more meaningful when more and more active traders are attracted to the business. Existence of unofficial market: The grey/black market which existed outside the exchange premises during the ban on futures trading for over 30 years still continues to exist even inside the exchanges. It has been widely accepted and admitted by some of the CEOs/secretaries of exchanges that at least 25-30 per cent trade in the exchanges go unreported. The unofficial market operating outside the official exchange is much larger. These unofficial traders find the margin, stamp duty and income tax requirements least encouraging to come to the official contract channels. Multiplicity of exchanges: Currently 20 exchanges are operational of which three are specifically for conducting NTSD contracts and the remaining are in the trade of nearly 30 commodity items. Recently, five new exchanges have been approved and three of them are exclusively for futures contract in sugar. Many of these exchanges are set up as specialised ones for trading in one or a few commodities. The international experience however shows that exchanges are only to provide a platform for trade in many commodities and different forms of contracts. The Chicago Mercantile Exchange started as an agricultural exchange, and now largely relies on trade in financial futures; while the New York Mercantile Exchange, now the world’s largest energy exchange, once traded butter and potatoes. If an exchange provides a well organised trading system for certain commodities, with well-developed procedures, a good intermediary structure, and a sound clearing house, it can build on these strengths to introduce new products and to attract large number of traders which would eventually make the exchange more broad-based and financially sound. Controlled market: Price variability is an essential precondition for futures markets. Any distortion in the market mechanism where free play of supply and demand forces for commodities determines prices will dilute the process of natural variability of prices and potential risk. It is imperative that for a vibrant futures market commodity pricing must be left to market forces, without monopolistic or undue government control. However, in India many of the commodities in which futures trading is allowed have been still protected under ECA 1955. There are also commodity-based specialised government agencies like Cotton Corporation of India, NAFED, Jute Corporation of India, etc, which seek to control supplies of some farm products. Regulation: The government has two important roles to play – an oversight role by which the government disciplining those who try to manipulate the markets for their own benefit, and ensuring the sanctity of contracts; and secondly, an enabling role by which the government providing the necessary legal and regulatory framework for the smooth functioning of the system. The regulatory intervention should be most active at the time of the establishment of the exchange and of contracts. If the contracts are well formulated, and delivery modalities provide effective line of defence against attempts at manipulation, government has to only act as a watchdog intervening only when necessary. The goal of the regulatory agency is not only to regulate but also to inculcate the culture of self-regulation among the participants. This in turn, over a period of time, will give way for more self-regulation supported by the advisory role of state regulation. Promotion of the use of derivatives: With the increasing technological sophistication of trading methods, better transparency and guarantee of trade in futures, more institutional players like mutual funds, foreign institutional investors should be allowed to trade in recognised commodity exchanges. The exchanges under the guidance of the FMC must undertake publicity and mass awareness programmes for the promotion of this segment. For this purpose it would be beneficial for FMC to have a broad based functional alliance with its counterpart in stock markets. Modification of income tax provisions and rationalisation of stamp duty: In the past, speculative and non-speculative businesses were treated equally for taxation so far as right to set off or carry forward of loss was concerned. As a result, it was possible to set off speculative losses against speculative profits. Current tax rule however does not allow for setting off or carrying forward of speculative losses against regular business income. It does not treat losses on futures transaction as a normal business expense. The futures trading industry has been demanding amendments in the tax law for the promotion of futures trading activities. Similarly, the stamp duty provisions on futures trading make the transaction cost higher and moreover, the rates vary from one state to the other. While states like Gujarat, Madhya Pradesh, Kerala do not impose stamp duty on futures trading, some other states like Maharashtra imposes stamp duty on futures trading of certain commodity items. Conclusions Commodity derivatives have a crucial role to play in the price risk management process especially in agriculture dominated economy. Derivatives like forwards, futures, options, swaps, etc, are extensively used in many developed as well as developing countries in the world. However, they have been utilised in a very limited scale in India. The production, supply and distribution of many agricultural commodities are controlled by the government and only forwards and futures trading are permitted in certain commodity items. The present study is an investigation into the present status, growth constraints and developmental policy alternatives for derivative markets in agricultural commodities in India. The study has surveyed the recognised exchanges and their organisational, trading and the regulatory set up for futures trading. In the light of visit to six exchanges the study identified the problems and prospects of the futures markets and outlined various policy alternatives for revival of agricultural commodity futures in India. A review of the nature of institutional and policy level constraints facing this segment calls for more focused and pragmatic approach from government, the regulator and the exchanges for making the agricultural futures markets a vibrant segment for risk management. [This paper is drawn on the report entitled ‘Derivatives and Price Risk Management: A Study of Agricultural Commodity Futures in India’ which is a broader study carried out by the author with financial support from Indian Institute of Management, Lucknow. References Forward Markets Commission, Ministry of Food and Consumer Affairs, Government of India (2000): Forward Trading and Forward Markets Commission. Ministry of Food and Consumer Affairs, Government of India (1999): Futures Trading, Commodity Exchanges and Forward Markets Commission, New Delhi. Sahadevan, K G (2002a): ‘Risk Management in Agricultural Commodity Markets: A Study of Some Selected Commodity Futures’, Working Paper Series: 2002- 07, Indian Institute of Management, Lucknow. (2002b): ‘Derivatives and Risk Management: A Study of Agricultural Commodity Futures in India’, A Research Project Report, Indian Institute of Management, Lucknow. United Nations Conference on Trade and Development (1995): ‘Feasibility Study on a Worldwide Pepper Futures Contract’, (UNCTAD/COM/64). – (1998): ‘A survey of Commodity Risk Management Instruments’, (UNCTAD/COM/15/Rev2). Youssef, Frida (2000): ‘Integrated Report on Commodity Exchanges and Forward Markets Commission’, Report of the World Bank Project for the Improvement of the Commodities Futures Markets in India.

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