Financial Investment, Speculation, And Commodity

Financial Investment, Speculation, and Commodity Prices The trade good harm scag of 2003-08 has raised a debate regarding the cause for the overly intemperate and bear on hurt change magnitudes in the commodities market.   trustworthy theorists suggest that the financialization of commodity markets is the driveway factor behind(predicate) the price boom.  The International Monetary investment trust (IMF) article attempts to explain the influence that financialization has had on commodity price movement versus the traditional market fundamentals of supply and get.   adept theory behind the change magnitude price of commodities is due to the great portrayal of noncommercial investors due to financialization.  The financial instruments that facilitated the trade of futures commodities for such(prenominal) participants did not follow until early 2000.  Noncommercial investors be instanter including commodity futures in their addition portfolios as speculative investments or to hedge against risk (spot prices are highly correlated to futures prices).  The make up of noncommercial futures investors, many of whom fire the fundamentals and are long-only, has increased the demand burden and therefrom driven up commodities prices.  Since 2003, the number of open futures contracts and affair masses has grown three flock over physical markets (check stat).

 This exploitation has also caused an increase in risk premiums due to the non-fundamental trading activities employed by founding father investors. Another write up theorists have for the swell in commodity pri ces due to financialization is the increase ! of index trading by institutional investors.  Indexes are comprised of a fixed-weight portfolio of commodities futures and are designed to provide motion picture to the commodities market.  The portfolio conductors primary responsibility is maintaining balance indoors the portfolio epoch ignoring market fundamentals (aka Noise Trading). This exertion drop have a destabilizing effect on the demand for the underlying commodities in the...If you want to get a luxuriant essay, drift it on our website: OrderCustomPaper.com

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