Commodity Exchange II

Commerce SSS1 Third Term

WEEK  2

Commodity Exchange contd

Performance Objectives

The student should be able to:

    1. Explain the term commodity exchange.

    2. Explain the term tradable commodity.

    3. State the requirements for trading.

Content

Meaning of Commodity Exchange

Commodity exchange can be defined as an open and organized market place where ownership and titles to a certain quantity of tradable commodity are exchanged at a predetermined standardized price and quality. It can also be defined as an organized process and procedure where buyers and sellers of tradable commodities come into contact to exchange such commodities at a pre-determined price and quality.

Commodity exchange is characterized by commoditization or commodification in which commodities are made to lose any form of differentiation across their supply base for the purpose of arriving at a globalised standard. Example of commodity exchange in Nigeria is the agricultural commodity board where samples of agricultural commodities are physically examined and graded to meet the international standard.

Meaning of Tradable Commodity

Tradable commodities are materials which are exchanged for value in big quantities and whose quality standards and prices are universally applicable (have international markets). Examples of tradable commodities in West Africa are energy (natural gas, crude oil, furnace oil), fibre (cotton, raw jute), Grains (rice, maize, cowpea, millet etc. Non-tradable commodities are the goods that have only domestic markets. For example, land is a non-tradable commodity.

Requirements for Trading in Commodity Exchange

1. Grading System: This involves the process of arranging the commodities in a manner to ensure quality delivery of the commodities to the customers. This is a systematic procedure and process involved in examining and sorting of tradable commodities in order to meet up with the world standard.

2. Warehousing: It is the process whereby tradable commodities are stores for a specified future period to satisfy trading purpose i.e. until they are needed.

3. Clearing system: This is the process of ensuring that commodities exported are carefully cleared from the seaports or airports. During clearing, efforts must be made to ensure that the commodities do not get damaged and goods cleared must be intact in order to meet up customers' requirements.

4. Standardizing: This process ensures that commodities being traded are able to meet the standard set by the destination country. It also involves the process of establishing or obtaining agreement or standard for tradable commodities in order to meet up with the taste of the buyers. Standardizing gives room for consistent quality, uniformity and reduction in a variety of commodity in the commodity exchange market.