Commodities Markets Flashcards
Commodities market
where the value of tangible goods are traded
Commodities include:
- Metals
- Oil
- Agricultural products
- Chemical
- Lumber
Discretionary income
is the amount of money remaining after paying for essentials (rent, foods, taxes and utilities)
- If the cost of commodities increases the customer will have less discretionary income to spend
What type of income does the fashion indsutry rely on
discretionary income
Metals (type of commodity)
Metals have manufacturing, industrial and medical applications, they include:
- Gold
- Silver
- Platinum
- Aluminium
- Copper
Oil (type of commodity)
What fabric comes form crude oil?
As the price of crude escalates the price of basic materials will escalate
Crude oil is refined into gas (petrol) Polyester is derived from crude oil
Gas (type of commodity)
Higher prices affect cost of transporting the goods, they affect the customers discretionary income
- Travel plans become more expensive
- People look fir alternative transportation
- The price of gas does not affect airplane prices as they use different fuel
Agricultural commodities
- They are affected by weather and disease
- Traded on a worldwide basis so this can often balance out regional issues
- Increases in price of food can decrease discretionary income
Examples of agricultural commodities
- Oranges
- Corn
- Wheat
- Coffee
- Cotton
- Wool
- Boy beans
Other commodities
- Rubber
- Lumber
- Chemicals
- Has a direct impact on shoes and other accessories
- Affect the price of housing and furniture
- There are a variety of chemicals that are essential to the production of fabric and more
The commodities business
- All commodities are traded
- Businesses can make contracts with people for the future so that if the price suddenly goes up they aren’t that affected, they can now control costs.
Options
contracts brought for a future date
Who determines oil prices
OPEC
Derivatives
a contract between two parties which derives its value/price from an underlying asset
The value of the derivative is based on the future value of the commodity
What is the simplest form of a derivative
The future commodity option – is the simplest form for derivative
How are commodities traded?
- Commodities have a direct impact on the cost of living
- All commodities are traded on a international basis
Gold
What is it an indicator of?
When do investors buy it?
A major indicator of economic stability
- Investors buy gold in times of economic uncertainty
- Gold, platinum and silver affect the price of jewellery
- Lumber affects the prices of. New houses
- Cotton affects the price of fabric
- Oil, is a major component of polyester
- Fuel, heating and food prices affect discretionary income
- Higher fuel prices affect the cost of transportation
-
Foreign exchange
the trade of world currencies:
Spot trades
are usually two day trades at the current value of the currency
Future trades
are contracts to buy a currency at agreed price at a later date
Swaps
are an exchange of currency between traders that is revised on a agreed date
Each nation has two types of currency:
1) Domestic currency
2) Foreign currency
Domestic dollar
is the actual money the citizenry uses to purchase goods and services
- Prices in the domestic dollar are expected to all allow the citizen to meet basic needs
- Occasionally goods are priced out of the consumer market, normally due to inflation from shortages
The Foreign dollar
Impacted by the balance of trade
Hard currencies
are trades: Euro, Dollar, Pound, which is based on their economic stability
Secondary currencies
peso, rand and rupee, their economies aren’t as strong
Foreign exchange
trading ones domestic currency for the local currency
When a country’s currency is devalued, tourists are attracted to that country
What are market indicators used for?
- Used to assess the economic health of a nation
- They look at a variety of indicators
- Indicators reflect activity in many business sectors
Consumerism
(people buying things) – an important part of the market performance and is reflected in the GDP
List some market indicatord
Interest rates Gross domestic product Index of durable goods Consumer price index (CPI) New housing starts / sale of existing homes Consumer confidence index Unemployment figures Financial market indicators
Interest rates
- Determined by the federal reserve bank
- Higher interest rates lower / slower economic growth, reduce cooperate spending but it can also create further inflation
- The federal reserve uses interest rates to stimulate the economy
Gross domestic product
total monetary value of all the goods and services a country produces
- Reported quarterly
- Includes consumer spending
Real GDP
is when the GDP is adjusted for inflation of goods and services
Index of durable goods
- Reflects cost of machinery used for production of goods and services
- Higher index an foreshadow a slow down or cooperate expansion
- Last industry to leave the US
Consumer price index (CPI)
the price of a weighted average market basket of consumer goods and services purchased by households (shopping basket)
- Reported regionally
New housing starts / sale of existing homes
- Rise in index increases dollars spent for home furnishings
- Reduce dollars available for clothing
- Reflects strength of economy because people move when they have money and loans available
Consumer confidence index
- Analyses the attitudes of 500 US households based on savings and spending trends
- Measures the optimism on the state of the current and future economy
- Done quarterly
Unemployment figures
- Reported quarterly and yearly by sector
- Critical reflection of the growth of the economy
Financial market indicators
- Measure the performance of the stock market and assess relative value
