Comments

Most candidates did not attempt this question and the once that did scored very low marks.

The expected responses are.

1. Benefits of a commodity exchange


1. It provides the opportunity for industrial buyers and sellers to meet and manage their price risks better.


2. It ensures that farmers sell their products close to the market price by publishing futures prices daily.


3. It encourages continuous production and removes the need to look for buyers on the part of producers. It increases agricultural production.


4. Import/export competitiveness: As a result of availability of information from the market, all parties know the market trend and requirements.


5. It encourages standardization of products.


6. It generates foreign exchange earnings.


2. Methods of trading in a commodity exchange


1. Open outcry



This is a method of shouting items of sale on commodity market with hands raised by the buyers to signify intention to buy.

2. E- Trading



This is a method where buyers and sellers of commodities are brought together through electronic platform. The bargain is struck without negotiations.

3. Pit trading



This is the method of trading where buyers and sellers meet in a particular area of the trading floor to reach a bargain through open outcry system.

3. 1. Requirements for trading in a commodity exchange
   
   
   2. The item must be possible of being sold by description.
   
   
   3. Demand must be large and supply must flow naturally to the market.
   
   
   4. The commodity must be susceptible to standardisation or grading.
   
   
   5. The commodity must not be a perishable one that could be subject to deterioration.
   
   
   6. The traders must be bonafide members of the exchange and must not engage in insider trading.