Equities and commodities Flashcards
Equity investors buy shares in a company in the expectations…
that their value will grow in line with or faster than economic growth
Commodity investors bet that a commodity….
will move up or down in the short term as a result of some weather event or political upheavel
What is CAP
The European Union’s Common Agricultural Policy
Why do governments get intervene in markets?
They believe they can do a better job than the free market at balancing supply and demand at a fair price.
What’s a problem with government set prices?
1) You don’t know what the actual demand is for a commodity
2) the system becomes rigid and unresponsive, inadvertently causing shortages.
What do gov’s help with?
1) collective good pricing i.e environemntal costs of factory pollution, research into new crop varieties, railways, ports.
2) they do a better job at providing colelctive goods like education
3) the government encourages the setting up of commodity exchanges to facilitate trade and privude inforamtion
What diplomatic reasons would a gov intefere for?
by applying a lower import tarrif to gain favour from a neighbour or in exchange for lower tarrifs on other goods within the framework of a free trade area FTA
altruistic governments may remove tarrifs….
to promote growth in developing countires. E.g the EUs everything but arms. allowed the worlds least developed countries to export products except weapons duty free in the EU
Social reasons and selfish reasons to keep farm prices high….
social: to maintain rural incomes and discourage migration to cities (china)
selfish: politicians keep prices high to win votes (india)
How might governments try to bring food prices down?
by imposing position limits in the future markets / limiting number of future contracts that anyone can hold
What dos the indian gov do to bring prices down?
close the agricultural futures market - shooting the messenger!
Who confiscated stocks in 2016?
Egypt. there was a localised sugar shortage of sugar.
what are the top three determining factors in the supply of a commodity?
Weather, price, government action
1,2,3 best business areas
Remember, in commodities your best business is national, your second-best business is regional, and your worst business is international.
because we’re growing and producing we can protect our prices much better…
with options
