commodities

(noun)

term used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.

Examples of commodities in the following topics:

  • Uses of Derivatives to Manage Exposure

    • Derivatives allow risk related to the price of underlying assets, such as commodities, to be transferred from one party to another.
    • Companies that produce or depend on the purchase of commodities are exposed to price fluctuations that occur in commodities markets.
    • Derivatives allow risk related to the price of underlying assets, such as commodities, to be transferred from one party to another.
    • Hedging also occurs when an individual or institution buys an asset (such as a commodity, a bond that has coupon payments, a stock that pays dividends, etc.) and sells it using a futures contract.

  • Forms of Money

    • First and oldest payment system is commodity money.
    • Commodity money is government selects one commodity from society to become money, such as gold or silver.
    • Commodity money could be anything.
    • Commodity money could be full-bodied money.
    • Governments discovered a trick about commodity money.

  • Answers to Chapter 4 Questions

    • Spot market is when the buyer and seller immediately exchange a commodity for money, while a derivative market is the buyer and sell agree upon a price today, but exchange the commodity for the money on a future date.
    • Buyer and seller agree to a price and quantity today, and they exchange the commodity and money on a future date.

  • Relationship Between Financial Policy and the Cost of Capital

    • Companies often use hedging techniques to offset the risk of price fluctuation for commodities, such as oil or agricultural products.
    • Companies often use hedging techniques to offset price fluctuations for commodities.

  • Disinflation

    • Even though the demand for commodities fall, the supply of commodities still remains unaltered.

  • Forward and Spot Transactions

    • In a derivatives market, investors can buy and sell contracts today that specify future purchases of financial securities and commodities.
    • Previous chapters focused on spot transactions, where a buyer and seller complete a transaction by immediately exchanging money for the commodity.
    • Assets could be commodities such as coffee, corn, petroleum, pork bellies, and wheat, or financial assets such as stocks, bonds, currencies, Eurodollars, and other financial instruments.

  • Time Lags and Targets

    • Commodity prices: Some economists suggested the Fed focus on commodity prices.
    • However, commodity prices do not accurately predict inflation well.

  • Types of Financial Markets

    • A financial market is an aggregate of possible buyers and sellers of financial securities, commodities, and other fungible items, as well as the transactions between them.

  • Secondary Market Organizations

    • Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities, or derivatives directly between two parties.

  • Futures and Forward Contracts

    • For example, the Chicago Board of Trade allows futures for agricultural products and precious metals, while the New York Mercantile Exchange allows the exchange for energy commodities like petroleum and electricity.
    • Futures and forward contracts allow the buyer and seller to agree on a price for a commodity today, and the exchange of money for the commodity will occur on a specific date in the future.
    • As the spot market price changes for a commodity daily, either the buyer or seller will lose money if the exchange occurs today.