Commerce Jan/Feb 2017

Question 4

 

    1.      What is a commodity exchange?

     

    1.      List five tradable commodities in a commodity exchange.
    State six functions of a commodity exchange

     

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    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:

          1. Grains;
          2. Fibre;
          3. Cassava;      
          4. Livestock/meat;
          5. Cocoa;
          6. Crude petroleum;
          7. Gas;
          8. Gold;
          9. Silver;
          10. Zinc;
          11. Platinum;
          12. Iron;
          13. Cotton;
          14. Coffee;
          15. Groundnut;
          16. Palm produce.

                       (c)      The functions of a commodity exchange are:

    1. It provides opportunity to hedge against risks of adverse future   

            price fluctuations;   

    1. Producers and users have better and easier access to market

            information   which reduces their vulnerability to cheating by middlemen and buyers;

    1. It gives assurance of regular and uninterrupted product

            demand/regular market;
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    1. It provides a convenient place where members meet and transact           business according to  establish rules and regulations;
    2. It enhances expansion and improvement in warehousing facilities;
    3. quality assurance- they ensure high quality of goods traded by

              getting dealers to comply with set standards and grades;

    1. It provides access to commodities in international market and this promote competitiveness/ increase in total world output;
    2. It provides a platform for the settlement of disputes among members/arbitration;
    3. It provides producers opportunities to transfer their risks to

              professional risk bearer.