Question 4
- What is a commodity exchange?
- List five tradable commodities in a commodity exchange.
Observation
Most candidates could not explain commodity exchange. Some candidates were even explaining stock exchange. Most candidates could not list the tradable commodities.
The expected responses to the question include:
4. (a) A commodity exchange is a market that provides arrangements and facilities for buying and selling of tradable commodities.
(b) Tradable commodities in the commodity exchange include:
- Grains;
- Fibre;
- Cassava;
- Livestock/meat;
- Cocoa;
- Crude petroleum;
- Gas;
- Gold;
- Silver;
- Zinc;
- Platinum;
- Iron;
- Cotton;
- Coffee;
- Groundnut;
- Palm produce.
(c) The functions of a commodity exchange are:
- It provides opportunity to hedge against risks of adverse future
price fluctuations;
- Producers and users have better and easier access to market
information which reduces their vulnerability to cheating by middlemen and buyers;
- It gives assurance of regular and uninterrupted product
demand/regular market;
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- It provides a convenient place where members meet and transact business according to establish rules and regulations;
- It enhances expansion and improvement in warehousing facilities;
- quality assurance- they ensure high quality of goods traded by
getting dealers to comply with set standards and grades;
- It provides access to commodities in international market and this promote competitiveness/ increase in total world output;
- It provides a platform for the settlement of disputes among members/arbitration;
- It provides producers opportunities to transfer their risks to
professional risk bearer.