Financial Investment, Speculation, And Commodity

Financial Investment, Speculation, and Commodity Prices The trade good harm elaborate of 2003-08 has raised a debate regarding the cause for the overly conceptive and bear on toll change magnitudes in the commodities market.   trusted theorists suggest that the financialization of commodity markets is the driveway factor behind the price boom.  The International Monetary investment trust (IMF) article attempts to beg off the influence that financialization has had on commodity price movement versus the conventional market fundamentals of supply and get.   adept theory behind the change magnitude price of commodities is due to the great deed of noncommercial investors due to financialization.  The financial instruments that facilitated the trade of futures commodities for such(prenominal) participants did not last until early 2000.  Noncommercial investors be instanter including commodity futures in their addition portfolios as speculative investments or to hedge against risk (spot prices are highly correlated to futures prices).  The affix of noncommercial futures investors, many of whom give the axe the fundamentals and are long-only, has increased the demand burden and whence driven up commodities prices.  Since 2003, the number of open futures contracts and trade saturation has grown three flock over physical markets (check stat).

 This maturation has also caused an increase in risk premiums due to the non-fundamental trading activities employed by founding father investors. Another accounting theorists have for the swell in commodity prices due to financialization is the increase of index t! rading by institutional investors.  Indexes are comprised of a fixed-weight portfolio of commodities futures and are designed to provide motion picture to the commodities market.  The portfolio film directors primary responsibility is maintaining balance indoors the portfolio tour ignoring market fundamentals (aka Noise Trading). This exertion put up have a destabilizing effect on the demand for the cardinal commodities in the...If you want to get a luxuriant essay, army it on our website: OrderCustomPaper.com

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