CHAPTER V TRADE IN EXCHANGES AND AUCTIONS. the Exchange the Exchange - regularly functioning wholesale market for goods, raw materials, securities. They.

CHAPTER V

TRADE IN EXCHANGES AND AUCTIONS

the Exchange the Exchange - regularly functioning

wholesale market for goods, raw materials, securities. They serve as an economic tool of the market economy, organizing free market relations for the purchase and sale of goods, raw materials and securities.

Typical sale in exchanges may include bulk commodities sold by the standards (set by the sort) or standard sample (grain, sugar, wool, cotton, coffee, rubber, metals).

Exchange trade in the industrialized capitalist countries has a significant impact on the condtion of commodity markets of grain and other agricultural products, sugar, wool, coffee, rubber, oil, petroleum products, building materials, non-ferrous and ferrous metals and others.

The main purpose of commodity exchanges is carrying out free trade and conclusion contracts for procurement and selling goods at formed market prices under the influence of supply and demand.

Exchange is an organized wholesale market in which trade is conducted according to the established rules by exchange in the form of open public bargaining held at a predetermined location at a certain time.

Great functional value of the exchange is price regulation. It allows to level fluctuations in the price of the standard product by means of quotes on prices. Specific contract prices are fixed at the Commodity Exchange, and then publish the average commodity price. Buyers and sellers in transactions of purchase and sale is guided by the average stock price, thus eliminating its quick fluctuation.

Exchanges can be subdivided:

By objects sold: • Stock exchange or securities exchange• Commodities exchange

By type of trade: • Classical exchange – for spot trades• Futures exchange – for derivatives

Commodity exchanges are trading organizations that engage in transactions that involve the buying and selling of futures and options related to the commodities market. Generally, the commodity exchange will maintain a physical location where trading activity takes place. Increasingly, a commodity exchange will also provide online access to trading activity, including the ability to trade on the exchange by electronic means.

The basic structure of any commodity exchange will involve creating a platform of standards, rules, and processes that will govern the trading activity of the exchange. All regulations and procedures must be in compliance with the national laws relating to investment trading within the jurisdiction where the commodity exchange is physically located. (Civil Code, article 94)

Exchange will be created by decision in the meeting of the founders. Founders contribute their own shares, and the total amount of which is determined by the meeting of the founders. Exchange acquires legal entity from the moment of registration, and the right to lead trading in exchange only after receiving a license to exchange organization.

Membership on the exchange gives the right to participate in Exchange trading, decision-making at the general meetings and other management elements of the exchange, to participate in the distribution of profits or dividends and other advantages.

Currently, commodity exchanges, that deals with the trade of real goods in the world there are very few. They were replaced by the futures exchanges. Futures transactions are conclude for not grown (not created) product, for example under the next year's crop. Futures Exchange allows trading without subsequent delivery of the goods.

The modern, well-functioning Exchange has a complex mechanism, information-intensive, capacious technique with the selection of highly qualified specialists.(e.g. there are 5 Exchanges in London, 11 Stock Exchanges and 30 Commodity Exchanges in the U.S, in Dushanbe only 1 not poor-functioning Commodity Exchange )

For optimal functioning Exchange the number of exchanges in a country should be minimal

HEDGING - An operation undertaken by a trader or dealer who wishes to protect an open position , especially a sale or a purchase of a commodity, currency, security, etc., that is likely to fluctuate in price over the period that the position remains open. For example, a manufacturer may contract to sell a large quantity of a product for delivery over the next six months. If the product depends on a raw material that fluctuates in price, and if the manufacturer does not have sufficient raw material in stock, an open position will result. This open position can be hedged by buying the raw material required on a futures contract ; if it has to be paid for in a foreign currency the manufacturer's currency needs can be hedged by buying that foreign currency forward or on an option .

Trade in the exchange are carried out with the help of brokers and dealer. Broker - exchange intermediary between buyers and sellers on the implementation of trading in the purchase, sale and exchange of goods. Brokers act as representatives (employees) brokerage firms, companies, firms or as independent entities.

Auction

Auction (from Latin Auctio - sale at public auction) - a way of selling goods, having individual properties at public auction at a predetermined time and place designated.

Auction - kind of market trade in which the seller, wants to get the maximum profit, uses direct competition with several buyers presented at the auction. In this case, the seller assigns the starting price of the goods, which increases during the auction to the threshold level based on the solvency of those participants at the sale of the buyers.

As the organizer of trading can be a owner of the thing or the owner of a property right or a specialized organization. Specialized organization under contract with the owners of things or property rights holders and acts.

Auctions are conducted in the form of auction or tender.

Winner bidding in the auction - person who offered the highest price, and winner in competition - a person who is on the conclusion of the competition committee, appointed by the organizer of the auction in advance, offered the best conditions.

Auctions and tenders can be open or closed. In an open auction or tender any person may participate. In a closed auction or competition involved only persons invited for this purpose.

The auction may be domestic and international.

Procedure of auction

Managing the auction procedure implemented by the auction committee. Current committee includes a chairman (director of auction), dealer (merchant, businessmen, trader), legal adviser (solicitor), expert (in particular subject of a trade), auctioneer, accountant (bookkeeper).

The underlying assumption we make when modeling auctions is that each bidder has an intrinsic value for the item being auctioned; she is willing to purchase the item for a price up to this value, but not for any higher price. We will also refer to this intrinsic value as the bidder’s true value for the item. There are four main types of auctions when a single item is being sold (and many variants of these types).

1. Ascending-bid auctions, also called English auctions. These auctions are carried out interactively in real time, with bidders present either physically or electronically. The seller gradually raises the price, bidders drop out until finally only one bidder remains, and that bidder wins the object at this final price. Oral auctions in which bidders shout out prices, or submit them electronically, are forms of

ascending-bid auctions.

2. Descending-bid auctions, also called Dutch auctions. This is also an interactive auction format, in which the seller gradually lowers the price from some high initial value until the first moment when some bidder accepts and pays the current price. These auctions are called Dutch auctions because flowers have long been sold in the Netherlands using this procedure.

3. First-price sealed-bid auctions. In this kind of auction, bidders submit simultaneous “sealed bids” to the seller. The terminology comes from the original format for such auctions, in which bids were written down and provided in sealed envelopes to the seller, who would then open them all together. The highest bidder wins the object and pays the value of her bid.

4. Second-price sealed-bid auctions, also called Vickrey auctions. Bidders submit simultaneous sealed bids to the sellers; the highest bidder wins the object and pays the value of the second-highest bid. These auctions are called Vickrey auctions in honor of William Vickrey, who wrote the first game-theoretic analysis of auctions (including the second-price auction). Vickery won the Nobel Memorial Prize in Economics in 1996 for this body of work.