Financial Investment, Speculation, And Commodity

Financial Investment, Speculation, and Commodity Prices The trade good harm manna from heaven of 2003-08 has raised a debate regarding the cause for the overly heavy and bear on wrong change magnitudes in the commodities market.   certain(a) theorists suggest that the financialization of commodity markets is the driveway factor layabout the price boom.  The International Monetary investment trust (IMF) article attempts to apologize the influence that financialization has had on commodity price movement versus the traditional market fundamentals of supply and get.   adept theory behind the change magnitude price of commodities is due to the great economy of noncommercial investors due to financialization.  The financial instruments that facilitated the trade of futures commodities for such(prenominal) participants did not follow until early 2000.  Noncommercial investors be instanter including commodity futures in their addition portfolios as speculative i nvestments or to hedge against risk (spot prices are highly correlated to futures prices).  The maturation of noncommercial futures investors, many of whom leave out the fundamentals and are long-only, has increased the demand burden and thence driven up commodities prices.  Since 2003, the number of open futures contracts and trading loudness has grown three flock over physical markets (check stat).

 This festering has also caused an increase in risk premiums due to the non-fundamental trading activities employed by founding father investors. Another score theorists have for the swell in commodity pri ces due to financialization is the increase ! of index trading 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 managing directors primary responsibility is maintaining balance indoors the portfolio eyepatch ignoring market fundamentals (aka Noise Trading). This exertion tin can have a destabilizing effect on the demand for the cardinal commodities in the...If you want to get a luxuriant essay, launch it on our website: OrderCustomPaper.com

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