“FINANCIAL PERFORMANCE OF RASTRIYA BANIJYA BANK” Project report submitted to ACHARYA BANGALORE B-SCHOOL in partial fulfillment of the requirements for the award of the degree Bachelor of Business Management Submitted By, SHRISTY BHANDARI Register No: 12YUC24059 Under the guidance of Dr.Kavitha Professor ACHARYA BANGALORE B -SCHOOL
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“FINANCIAL PERFORMANCE OF RASTRIYA BANIJYA BANK”
Project report submitted to ACHARYA BANGALORE B-SCHOOL in partial
fulfillment of the requirements for the award of the degree
Bachelor of Business Management
Submitted By,
SHRISTY BHANDARI
Register No: 12YUC24059
Under the guidance of
Dr.Kavitha
ProfessorACHARYA BANGALORE B -SCHOOL
ACHARYA BANGALORE B-SCHOOL (Affiliated to Bangalore University)
Andrahalli Main Road, Off Magadi Road, Bangalore-560091
DECLARATION
I, SHRISTI BHANARI, hereby declare that this research project entitled ‘ Financial performance of Rastriya Banijya Bank’ submitted to Acharya Bangalore B-school in partial fulfillment of the requirements for the award of BBM, is a record of independent research work carried out by me under the supervision and guidance of Dr Kavitha, Professor, ABBS. This work has not formed the basis for the award of any Degree and has not been submitted previously to any other College/University.
Bangalore From:
January, 2015 SHRISTI BHANDARI
Dr. Kavitha
Professor
ABBS
ACKNOWLEDGEMENT
Firstly I would like to express our immense gratitude towards our institution ACHARYA BANGLORE B-SCHOOL, which created a great platform to attain profound technical skills in the field of BBM, thereby fulfilling our most cherished goal. I would thank all the Finance department of “RASTRIYA BANIJYA BANK” and the employees in the finance department for guiding me and helping me in successful completion of the project.
I am very much thankful to the professor Dr. KAVITHA (Internal guide) for extending her corporation in doing this project
I convey my thanks to beloved parents and my faculty who helped me directly or indirectly in bringing this project successfully
Table No. Title of the table Page No.
4.1 Shares and holdings of IIFL
4.2 Value of Gold Traded in MCX from 2003 to 2013
4.3 Calculation of Standard Deviation of the value of gold traded in MCX
from 2003 to 2013
4.4 Volume of Gold traded in MCX from 2003 to 2013
4.5 Calculation of Standard Deviation of the Volume of gold Traded in MCX
from 2003 to 2013
4.6 Value and volume proportion of gold traded in MCX from 2003 to 2013
4.7 Calculation of coefficient of correlation between value and volume of gold
traded in MCX exchange from 2003 to 2013.
4.8 Summary statistics of daily gold futures contracts
4.9 Correlation and integration test
Graph No. Title of the graphs Page No.
4.1 Value of gold traded in MCX from 2003 to 2013
4.2 Volume of Gold traded in MCX from 2003 to 2013
4.3 Coefficient of correlation between value and volume of gold traded in
MCX from 2003 to 2013
4.4 India The largest importer of Gold in 2002
4.5 Historical Gold prices since 1950-2001 in U.S.($) currency
4.6 Gold Reserves of Top 10 Countries
Contents
Chapter I Introduction 7– 31
o Introductiono History of futures exchangeso Gold
Importance of Gold Gold as an Independent Asset What makes Gold Special Pons and cons of gold Is it good for investment
Chapter III Research Methodology 32 – 37
2.1 Objectives of the Problem 2.2 Statement of Problem 2.3 Scope of the Study 2.4 Methodology of the study
2.4.1 Sources of data collection 2.4.2 Methods of Data Collection
2.4.3 Data Analysis and Interpretations
2.5 Plans of Analysis used 2.5 Limitations
Chapter II Company Profile 38 –58
3.1 Background and inception of IIFL 3.2 Nature of the business 3.3 Products and services 3.4 Vision Statement 3.5 Mission Statement 3.6 Ownership pattern 3.7 Work flow model
Chapter IV Data Analysis 59 – 78 4.1 Data Analysis and Interpretations
Chapter V Summary of Findings 79– 96
5.1 5.1 Major Findings 5.2 Fifteen Fundamental Reasons for bullish run of Gold 5.3 Conclusions and refrences 5.4 Balance sheet 5.5 Profit and loss account 5.6 Caital structure 5.7 Bibliography
Chapter I
Introduction
1.1 Introduction
A futures exchange or futures market is a central financial exchange
where people can trade standardized futures contracts; that is, a contract
to buy specific quantities of a commodity or financial instrument at a
specified price with delivery set at a specified time in the future. These
types of contracts fall into the category of derivatives. Such instruments
are priced according to the movement of the underlying asset (stock,
physical commodity, index, etc.). The aforementioned category is named
"derivatives" because the value of these instruments is derived from
another asset class.
Futures markets "provide partial income risk insurance to producers
whose output is risky, but very effective insurance to commodity
stockholders at remarkably low cost. Speculators absorb some of the risk
but hedging appears to drive most commodity markets. The equilibrium
futures price can be either below or above the (rationally) expected
future price. The various effects futures markets can have on market and
income stability are discussed. Rollover hedges can extend insurance
from short-horizon contracts over longer periods."
1.2 History of futures exchanges
One of the earliest written records of futures trading is in Aristotle's
Politics. He tells the story of Thales, a poor philosopher from Miletus
who developed a "financial device, which involves a principle of
universal application". Thales used his skill in forecasting and predicted
that the olive harvest would be exceptionally good the next autumn.
Confident in his prediction, he made agreements with local olive-press
owners to deposit his money with them to guarantee him exclusive use
of their olive presses when the harvest was ready. Thales successfully
negotiated low prices because the harvest was in the future and no one
knew whether the harvest would be plentiful or pathetic and because the
olive-press owners were willing to hedge against the possibility of a
poor yield. When the harvest-time came, and a sharp increase in demand
for the use of the olive presses outstripped supply, he sold his future use
contracts of the olive presses at a rate of his choosing, and made a large
quantity of money. It should be noted, however, that this is a very loose
example of futures trading and, in fact, more closely resembles an option
contract, given that Thales was not obliged to use the olive presses if the
yield was poor.
The first modern organized futures exchange began in 1710 at the
Dogma Rice Exchange in Osaka, Japan.
The United States followed in the early 19th century. Chicago has the
largest future exchange in the world, the Chicago Mercantile Exchange.
Chicago is located at the base of the Great Lakes, close to the farmlands
and cattle country of the Midwest, making it a natural center for
transportation, distribution, and trading of agricultural produce. Gluts
and shortages of these products caused chaotic fluctuations in price, and
this led to the development of a market enabling grain merchants,
processors, and agriculture companies to trade in "to arrive" or "cash
forward" contracts to insulate them from the risk of adverse price change
and enable them to hedge. In March 2008 the Chicago Mercantile
Exchange announced its acquisition of NYMEX Holdings, Inc., the parent
company of the New York Mercantile Exchange and Commodity
Exchange. CME's acquisition of NYMEX was completed in August
2008.
For most exchanges, forward contracts were standard at the time.
However, most forward contracts were not honored by both the buyer
and the seller. For instance, if the buyer of a corn forward contract made
an agreement to buy corn, and at the time of delivery the price of corn
differed dramatically from the original contract price, either the buyer or
the seller would back out. Additionally, the forward contracts market
was very illiquid and an exchange was needed that would bring together
a market to find potential buyers and sellers of a commodity instead of
making people bear the burden of finding a buyer or seller.
In 1848 the Chicago Board of Trade (CBOT) was formed. Trading was
originally in forward contracts; the first contract (on corn) was written
on March 13, 1851. In 1865 standardized futures contracts were
introduced.
The Chicago Produce Exchange was established in 1874, renamed the
Chicago Butter and Egg Board in 1898 and then reorganized into the
Chicago Mercantile Exchange (CME) in 1919. Following the end of the
postwar international gold standard, in 1972 the CME formed a division
called the International Monetary Market (IMM) to offer futures
contracts in foreign currencies: British pound, Canadian dollar, German
mark, Japanese yen, Mexican peso, and Swiss franc.
In 1881 a regional market was founded in Minneapolis, Minnesota, and
in 1883 introduced futures for the first time. Trading continuously since
then, today the Minneapolis Grain Exchange (MGEX) is the only
exchange for hard red spring wheat futures and options.
The 1970s saw the development of the financial futures contracts, which
allowed trading in the future value of interest rates. These (in particular
the 90-day Eurodollar contract introduced in 1981) had an enormous
impact on the development of the interest rate swap market.
Today, the futures markets have far outgrown their agricultural origins.
With the addition of the New York Mercantile Exchange (NYMEX) the
trading and hedging of financial products using futures dwarfs the
traditional commodity markets, and plays a major role in the global
financial system, trading over $1.5 trillion per day in 2005.
The recent history of these exchanges (Aug 2006) finds the Chicago
Mercantile Exchange trading more than 70% of its Futures contracts on
its "Globes" trading platform and this trend is rising daily. It counts for
over $45.5 billion of nominal trade (over 1 million contracts) every
single day in "electronic trading" as opposed to open outcry trading of
futures, options and derivatives.
In June 2001 Intercontinental Exchange (ICE) acquired the International
Petroleum Exchange (IPE), now ICE Futures, which operated Europe’s
leading open-outcry energy futures exchange. Since 2003 ICE has
partnered with the Chicago Climate Exchange (CCX) to host its
electronic marketplace. In April 2005 the entire ICE portfolio of energy
futures became fully electronic.
In 2006 the New York Stock Exchange teamed up with the Amsterdam-
Brussels-Lisbon-Paris Exchanges "Euro next" electronic exchange to
form the first transcontinental futures and options exchange. These two
developments as well as the sharp growth of internet futures trading
platforms developed by a number of trading companies clearly points to
a race to total internet trading of futures and options in the coming years.
In terms of trading volume, the National Stock Exchange of India in
Mumbai is the largest stock futures trading exchange in the world,
followed by JSE Limited in Sand ton, Gauteng, South Africa.
1.3 Gold
Gold is a precious metal which is also classed as a commodity and a
monetary asset. It has acted as a multifaceted metal down through the
centuries, possessing similar characteristics to money in that it acts as a
store of wealth, medium of exchange and a unit of value. Gold has also
played an important role as a precious metal with significant portfolio
diversification. Gold is used in industrial components, jewelry, as an
investment asset and reserve asset. Gold is a unique asset in that much of
the gold ever mined still exists today. Approximately 2500 tonnes of
gold is mined per annum. Above-ground stocks account for 135,000
tonnes. Governments and investors account for approximately 60,000
tonnes, jewelry accounts for 63,000 tonnes and 15,000 tonnes is held in
other forms such as electronics, etc. Gold is a highly liquid metal; it can
be readily bought or sold 24 hours a day, in large denominations and at
narrow spreads. This is highlighted by Draper et al. (2006) who note that
total annual production of gold is cleared by the London Bullion Market
Association every 2.5 days.
While gold is an industrial metal, its uses are fewer compared to other
metals, with only approximately 10% of gold demand derived from
industry. Of perhaps more interest is gold's use as an investible metal.
Central banks hold a large proportion of the above-ground stocks of
gold. Central banks and international financial institutions maintain
32,000 tons of gold in their reserve. Gold is held in central banks
reserves for a number of reasons: diversification, economic security—
gold maintains its purchasing power, physical security—gold is a liquid
asset, confidence—cushion in a crisis, maintains value, income—gold
leasing, insurance—against market crises. Much research also points to
the benefits of inclusion of gold holdings as leading to a more balanced
portfolio.
Gold futures are hedging tools for commercial producers and users of
gold. They also provide global gold price discovery and opportunities
for portfolio diversification.
In addition, they:
Offer ongoing trading opportunities, since gold prices respond
quickly to political and economic events
Serve as an alternative to investing in gold bullion, coins, and
mining stocks
Financial performance of gold in future market rates:-is the title of
my research project which I have undertaken during my project at India
Info line Limited
Of all the precious metals, gold is the most popular as an investment.
Investors generally buy gold as a hedge or harbor against economic,
political, or social fiat currency crises (including investment market
declines, burgeoning national debt, currency failure, inflation, war and
social unrest). The gold market is subject to speculation as are other
markets, especially through the use of futures contracts and derivatives.
Gold price has shown a long term correlation with the price of crude oil.
This suggests a reason why gold is sold off during economic weakness.
It is a technical analysis which implies use of various statistical tools to
see the trend which Gold has made in the future market and how its ups
and downs impacts the economy of a country in comparison to the
various metals such as Aluminum, copper, Lead, Nickel, Platinum,
silver, Steel, Tin, Zinc which are traded in commodity market.
As with stocks, gold investors may base their investment decision partly
on, or solely on, technical analysis. Typically, this involves analyzing
chart patterns, moving averages, market trends and/or the economic
cycle in order to speculate on the future price.
1.3.1 Importance of Gold futures
Gold is a precious metal which is also classed as a commodity and a
monetary asset. It has acted as a multifaceted metal down through the
centuries, possessing similar characteristics to money in that it acts as a
store of wealth, medium of exchange and a unit of value. Gold has also
played an important role as a precious metal with significant portfolio
diversification properties Gold is used in industrial components, jewelry,
as an investment asset and reserve asset. Gold is a unique asset in that
much of the gold ever mined still exists today. Approximately 2500 tons
of gold is mined per annum. Above-ground stocks account for 135,000
tones. Governments and investors account for approximately 60,000
tones, jewelry accounts for 63,000 tones and 15,000 tones is held in
other forms such as electronics, etc. Gold is a highly liquid metal; it can
be readily bought or sold 24 h a day, in large denominations and at
narrow spreads. The total annual production of gold is cleared by the
London Bullion Market Association every 2.5 days.
While gold is an industrial metal, its uses are fewer compared to other
metals, with only approximately 10% of gold demand derived from
industry. Of perhaps more interest is gold's use as an investible metal.
Central banks hold a large proportion of the above-ground stocks.
Central banks and international financial institutions maintain 32,000
tons of gold in their reserve. Gold is held in central banks reserves for a
number of reasons: diversification, economic security—gold maintains
its purchasing power, physical security—gold is a liquid asset,
confidence—cushion in a crisis, maintains value, income—gold leasing,
insurance—against market crises. Much research also points to the
benefits of inclusion of gold holdings as leading to a more balanced
portfolio.
There are a number of assets, traced from the literature in this area, that
have an influence on the gold market. In the 2004 period as the dollar
weakened, gold reached a 16-year high (compounded also by uncertain
economic conditions, geopolitical tensions and producer de-hedging).
Further dollar depreciation and a growing risk of dollar devaluation are
likely to strengthen investor demand for gold. Gold reflects the relative
strength of the currency in which it is quoted. For example, the dollar
price of gold may increase more in percentage terms than the sterling
price of gold; the price change merely reflects the dollar weakness
against sterling, rather than an intrinsic change in gold market
fundamentals (World Gold Council, 2002). The depreciation in the
dollar may fuel increased interest in gold due to the dilution in the
dollars’ worth. Gold appears to be the anti-dollar. Financial analysts
have attributed the rise in gold's price in recent months to the US dollar's
decline; gold is reflecting the US dollars value on international markets.
A lower US dollar makes it less expensive for Europeans (and others) to
buy dollar denominated gold. The weak dollar increases gold's attraction
as a stable place to invest money.
1.3.2 Gold as an Independent Asset
It’s not difficult to understand why the gold price moves independently
from the economic cycle when one considers the diversity of its demand
and supply base, the ultimate determinants of price movements.
There are three sources of gold supply: mine production, official sector
sales and scrap or recycled gold. Mine production is by far the largest
element, accounting for 70% of total supply last year. Changes in annual
mine supply bear no relation to changes in US or even global GDP
growth. The upward trend in mine production that was underway in the
late 1980s was not arrested by 1990 recession (the US economy suffered
an outright contraction, while world GDP growth slowed to 1.6% from
2.9% the previous year). Nor was the downtrend in mining output that
began in 2001 reversed by the sharp acceleration in world growth.
Mine production is influenced by very specific factors, such as the level
of exploration spending, the success or otherwise in discovering new
gold deposits and the cost of extraction (some new discoveries may not
be economically viable). Lead times in gold mining are often very long.
It can take years to re-open a closed mine, let alone find and mine new
reserves.
The decision to build a mine shaft (and often an entire infrastructure) is a
long term one that will often see business cycles comes and goes.
Central bank decisions to buy or sell gold (they remain net sellers) are
also usually strategic in nature, rather than reactive to the economic
cycle. The decision to buy or sell gold is often made years in advance
and then carried out over a period of years. In Switzerland, for example,
the proposition to sell gold (the first gold sales programmed) was first
recommended by a group of experts in 1997. However, the actual sales
programmed did not commence until May 2000, with the sales then
taking place over a period of five years.
Scrap supply is influenced by many factors, perhaps the most important
being price and price volatility, but recessions and periods of economic
distress have also had an impact. The most dramatic example is when
Korea was pushed into recession during the 1998 Asian currency crisis;
its scrap supply increased by almost 200 tones as the government bought
gold from the local populace in exchange for one-denominated bonds. It
then sold the gold on the international market in order to raise the dollars
necessary to avoid defaulting on its external debt.
Similarly, in Indonesia the 1998 recession saw scrap supply increase by
72 tons in the first quarter of the year, in this instance purely for
independent reasons rather than at the behest of the government.
The pros and cons of investing in gold
Highlights
Gold is often bought as a hedge against the risk of investment losses.
Gold prices are more volatile than many individual investors expect.
Day trading by central banks and speculators can affect the price of gold.
Up, up and up. That appears to be the direction of U.S. gold futures, which hit a record high of $1,910 per ounce in mid-August on the New York Commodity Exchange, or COMEX.
The opportunity to buy might tempt investors looking for fatter returns than they've earned on certificates of deposit, bank accounts, stocks or bonds. Yet, gold is far from foolproof.
Indeed, gold shouldn't be considered an investment, says Chris Hazy, chief investment officer at U.S. Trust, the private wealth management arm of Bank of America in New York. Rather, the precious metal acts as a hedge, or a way to try to protect wealth against the risk of loss in such asset classes as real estate, equities and bonds, he says.
Traditionally, investing in gold has been used as a hedge against inflation. That thinking still holds, though worries over inflation might be better understood as a fear of the loss of purchasing power or that "the money we currently have today will decline in value," Hazy says.
24-karat rabbits
The "love" aspect has to do with the rising demand for gold jewelry and ornaments in China, India and other emerging-market countries where gold is an important cultural symbol, Holmes says.
"Fifty percent of the world's population believes in gold … for love, romances, birthdays," he says. "This is the Year of the Rabbit, so if you're in Asia, you can see 24-karat gold rabbits that are given as a gift."
India and China together accounted for more than half of the total worldwide demand for gold bars, coins and jewelry in the second quarter of 2011, according to the World Gold Council, an industry market development organization based in London.
These demand pressures might be expected to attract new supply, bringing gold prices down to earth. But Holmes says the low-hanging fruit of gold mining already has been harvested, and environmental regulations have raised the cost of exploration, extraction and shipping.
"It's much more difficult to get that asset out of the ground," he says…..
Should I Buy Gold?
So far this year, gold has lost some of its luster, with its value falling by over 24%. If there is no rally during the rest of the year, gold will actually have its worst performance since 1981 — certainly ominous since that was the start of a 20-year bear market.
Yet it’s important to note that gold has posted a gain for every year from 2000 to 2014. In other words, it is more than reasonable that there should be some type of major pullback.
But is it a good time to buy now? Or should investors will be cautious? To see, here’s a look at the pros and cons:
Pros on Gold
Safe Haven: When it comes to owning gold, this is the common reason. It is considered by many to be an alternative to a currency — that is, a store of value, especially during times of distress. This has proved to be the case during such recent periods like 9/11 and the financial crisis in 2008 (during this time, it was only a small number of assets that increased in value). Whenever there is a drop in the value, the buzz is often that gold has suddenly lost its “safe haven” status. But again, the precious metal has been a popular store of value for hundreds of years. Besides, there are no signs that the world has entered a phase of bliss. Just some of the possible issues include budget battles in DC, potential bubbles in real estate, foreign policy hotspots like Iran and North Korea and instability in emerging markets.
Gold Supply. As with many other commodities, it has become harder to find deposits. And even when there is a new discovery, the costs of extraction are generally high. As a result, the overall production rates have been tepid from miners like Barrack Gold (ABX), Newmont Mining (NEM) and Goldcorp (GG). And with the recent plunge in the price of gold, it is likely that there will be even less production.
Stock Market: The stock market has been an easy place to make money lately, but there seems to be a disconnect. After all, corporate revenues and earnings are still fairly moderate as the economic recovery has been a let-down. Yet investors have been aggressive with stock buying and IPOs, which is a traditional sigh of frothiness. If there is a big pullback, then investors will scramble for alternatives — and gold may be an attractive option.
Cons on Gold
Central Banks: Since 2010, they have been strong buyers of gold. A key source of demand came from emerging markets, where many countries were piling up budget surpluses. By purchasing gold, it was a way to help diversify the bulging currency holdings. However, this year the demand has flagged as central banks have devoted more firepower to support domestic currencies. Volatility has been high because of recent indications from the Federal Reserve that there would be tapering, which could pull in more capital because higher interest rates. Consider that the consensus forecast is that gold buying will drop about 34% this year.
Inflation Hedge: This is one of the advantages of holding gold. With the surge in easy money across the world, many investors believed that inflation would spiral, which would drive the price of gold. But so far, there are few indications of inflation. The fact is that the world economy has remained sluggish, which has meant moderate increases in wages and consumer spending. In a recent report, the Labor Department said that prices rose only 1.2% in the year ended September.
Dead Money: Gold may be shiny but there are few commercial applications for it. Oh and of course, it does not produce any dividends. If anything, there is an ongoing cost for storage and insurance. This is why gold is known as a negative-yield investment. Given all this, there are some well-known investors who shun gold. One is actually famed
billionaire Warren Buffett, who once said: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Verdict
The negative sentiment is widespread for gold. As indicated from a recent article in Bloomberg, hedge funds have been dumping their holdings.But again, gold is still likely to be a safe haven. And this is why it can be a type of insurance policy for a portfolio. For example, legendary investor Byron Wien — who is the Vice Chairman at theBlackstone Group (BX) – recommends about a 5% stake.Plus, it’s fairly easy to get exposure to gold, such as with exchange-traded funds like the SPDR
Turning to demand
Conventional wisdom argues that recessions are bad for commodity
prices. The reasoning goes that as consumer and business confidence
falls, demand for goods and services is cut back and hence the materials
used in the production of those goods or in the provision of services
(many of which are commodities) declines, thereby depressing their
price.
The argument is logical. However, a few points are worth bearing in
mind with respect to gold. Demand for gold as an intermediate good is
relatively small in comparison to many other commodities. Last year,
2003: Launched proprietary trading platform Trader Terminal for retail
customers
2000: Launched online trading through www.5paisa.com Started
distribution of life insurance and mutual fund
1999: Launched www.indiaInfo line.com
1997: Launched research products of leading Indian companies, key
sectors and the economy Client includes leading FIIs, banks and
companies.
1995: Commenced operations as an Equity Research firm.
2.7 Work flow model:
Work flow model here consists of the process by which a prospective
client is contacted and served.
Dealers/Salesmen obtain contact information of the prospective customers
Walk in of prospective clients
Relationship Manager attends the clients
Obtain clients details and financial requirements (short and long term)
Contact clients and explain the details of proposed plans
CHAPTER-IV
ANALYSIS AND INTEPRETATION
The chapter includes the analysis of Secondary data collected from
MCX Websites Historical Data.
Table 4.1: Table showing Value of Gold Traded in MCX from 2005 to
2015
Source: Multi Commodity Exchange of India (MCX)’s website
Year
Commodity
Contract Value (Rs. In Lakhs)
2005 GOLD 12268.75
2006 GOLD 3940704.99
2007 GOLD 17551330.18
2008 GOLD 89636572.52
2009 GOLD 71977660.21
2010
2011
GOLD
GOLD
171474192
184997191.4
2012 GOLD 219874783.8
2013 GOLD 314713353.7
2014 GOLD 305672442.6
2015 GOLD 240012639.5
Inference: There is a constant growing investment in gold futures from
year 2005 to 2015 in MCX exchange.
Graph 4.1: Graph showing the value of gold traded in MCX from the
year 2005 to 2015
GOLD 2005
GOLD 2006
GOLD 2007
GOLD 2008
GOLD 2009
GOLD 2010
GOLD 2011
GOLD 2012
GOLD 2013
GOLD 2014
GOLD 2015
0
50000000
100000000
150000000
200000000
250000000
300000000
350000000
Series 1Column1Column2
Graph 4.2: Graph showing volume of Gold traded in MCX from 2005
to 2015
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
Quantity(In 000's) gm
Quantity(In 000's) gm x
Table 4.2: Table showing the Calculation of Standard Deviation of the
value of gold traded in MCX from 2005 to 2015
Yea
r
Commodity
Contract
Value (Rs. In
Lakhs) x (x-ẋ) (x- ẋ)^2
2005 GOLD 12268.75
-
147248016.7
21681978410839100
.00
2006 GOLD 3940704.99
-
143319580.4
20540502132286000
.00
2007 GOLD 17551330.18
-
129708955.2
16824413067329800
.00
2008 GOLD 89636572.52 - 3320492287438690.
57623712.89 00
2009 GOLD 71977660.21 -75282625.2
5667473657277430.
00
2010 GOLD 171474192 24213906.55
586313270324083.0
0
2011 GOLD 184997191.4 37736906
1424074074315610.
00
2012 GOLD 219874783.8 72614498.36
5272865371810390.
00
2013 GOLD 314713353.7 167453068.3
28040530082475500
.00
2014 GOLD 305672442.6 158412157.1
25094411532340300
.00
2015 GOLD 240012639.5 92752354.06
8602999183334320.
00
Sum 1619863140 Sum
13705605306977100
0.00
Mean 147260285.4 Sum/N-1
13705605306977100
.00
SD 117070941.34
Calculation:
Mean= Sum/N = 147260285.4
Standard Deviation
= 117070941.34
Inference: The above calculation that the standard deviation in the value
of gold traded from 2005 to 2015 is that gold futures market is very
volatile.
Calculation: VAR
Normalized value = 1.96 confidence level = 95%
VAR = SD * √n * (normalized value)
= 117070941.34 * √11 *1.96
= 117070941.34 * 3.315 * 1.96
= 760886193.308
Inference: The above calculation that the value at risk (VAR) of the value of gold invested in MCX from 2005 to 2015 is 760886193.308, with which we can infer that market risk places a conservative, one-sided confidence interval on portfolio losses for short forecast horizons.
Table 4.3: Table showing volume of Gold traded in MCX from 2005 to
2015
Year
Commodity
Contract Quantity(In 000's) gm
2005 GOLD 2013
2006 GOLD 632843
2007 GOLD 2600407
2008 GOLD 9957351
2009 GOLD 7604891
2010 GOLD 14024217
2011 GOLD 12144967
2012 GOLD 12052225
2013 GOLD 12655760
2014 GOLD 10287609
2015 GOLD 8385363
Inference: There is a constant growth in terms of the quantity of gold
traded in futures market MCX from 2005 to 2015.
Table 4.4: Table showing calculation of Standard Deviation of the
Volume of gold traded in MCX from 2005 to 2015
Year
Commodity
Contract
Quantity(In
000's) gm x (x-ẋ) (x-mean)^2
2005 GOLD 2013 8211409.3 67427243737214.9
6 0
2006 GOLD 632843
7580579.3
6
57465183488389.5
0
2007 GOLD 2600407
5613015.3
6
31505941472417.9
0
2008 GOLD 9957351
1743928.6
4 3041287088729.13
2009 GOLD 7604891
-
608531.36 370310420529.13
2010 GOLD 14024217
5810794.6
4
33765334305992.4
0
2011 GOLD 12144967
3931544.6
4
15457043227719.7
0
2012 GOLD 12052225
3838802.6
4
14736405680952.4
0
2013 GOLD 12655760
4442337.6
4
19734363675452.9
0
2014 GOLD 10287609
2074186.6
4 4302250202469.50
2015 GOLD 8385363 171940.64 29563582433.13
Sum 90347646 Sum
247834926882301.
00
Mean 8213422.364 Sum/N-1
24783492688230.1
0
SD 4978302.189
Calculation: Standard Deviation
= 4978302.18
Table 4.5: Table showing value and volume Proportion of gold traded in
MCX from 2005 to 2015
Year
Commodity
Contract
Value (Rs. In
Lakhs) x
Quantity(In
000's) gm y
2005 GOLD 12268.75 2013
2006 GOLD 3940704.99 632843
2007 GOLD 17551330.18 2600407
2008 GOLD 89636572.52 9957351
2009 GOLD 71977660.21 7604891
2010 GOLD 171474192 14024217
2011 GOLD 184997191.4 12144967
2012 GOLD 219874783.8 12052225
2013 GOLD 314713353.7 12655760
2014 GOLD 305672442.6 10287609
2015 GOLD 240012639.5 8385363
Source: Multi Commodity Exchange of India (MCX)’s website
Inference: The above calculation of coefficient of correlation between
the value and quantity of gold which is traded in MCX from 2005 to
2015 means there is a positive correlation between value and quantity of
gold futures market.
Graph 4.3: Graph showing Coefficient of correlation between value and
volume of gold traded in MCX from 2005 to 2015
0
50000000
100000000
150000000
200000000
250000000
300000000
350000000
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
Quantity(In 000's) gm yValue (Rs. In Lakhs) x
Graph 4.4 :- Graph Showing India The largest importer of Gold in 2002
Gold in Indian Scenario:
Gold is valued in India as a savings and investment vehicle and is the
second preferred investment behind bank deposits. India is the world’s
largest consumer of gold in jewelry (much of which is purchased as
investment). The hoarding tendency is well ingrained in Indian society,
not least because inheritance laws in the middle of the twentieth century
lent a great desirability to anonymity. Indian people are renowned for
saving for the future and the financial savings ratio is strong, with a ratio
of financial assets-to-GDP of 93%.
Gold’s circulates within the system and roughly 30% of gold jewelry
fabrication is from recycled pieces. India is typically also the largest
purchaser of coins and bars for investment (>80tpa), although last year it
had to concede first place to Japan in the wake of the heavy buying in
the first quarter due to fears for the stability of the Japanese banking
system. In 1998-2001 inclusive, annual Indian demand for gold in
jewelry exceeded 600 tons; in 2002, however, due to rising and volatile
prices and a poor monsoon season, this dropped back to 490 tons, and
coin and bar demand dropped to 67 tons. Indian jewelry off take is
sensitive to price increases and even more so to volatility, although this
decline in tonnage since 1998 is also due in part to increasing
competition from white and brown goods and alternative investment
vehicles, but is also a reflection of the increase in price. The Indian
bride’s “Streedhan”, the wealth she takes with her when she marries and
which remains hers, is still gold, however (thus giving gold an important
role in the “empowerment” of women in India).
The distinction between gold and commodities is important. Gold has
maintained its value in after-inflation terms over the long run, while
commodities have declined.
Some analysts like to think of gold as a “currency without a country’. It
is an internationally recognized asset that is not dependent upon any
government’s promise to pay. This is an important feature when
comparing gold to conventional diversifiers like T-bills or bonds, which
unlike gold, do have counter-party risk.
World Markets
Today's gold market is a round-the-world, round-the-clock business,
played out largely on dealers' trading screens. The core of the business,
however, remains in the key markets of London, as the great clearing
house, New York as the home of futures trading, Zurich as physical
turntable, Istanbul, Dubai, Singapore and Hong Kong as doorways to
important consuming regions and Tokyo where the Commodity
Exchange (TOCOM) sets the mood of Japan. Even Paris still has a small
market, a reminder of the days when the French were great hoarders,
while Mumbai has increasing importance under India's liberalized gold
regime that permits official imports through local markets.
Table 4.6: Table showing calculation of coefficient of correlation
between value and volume of gold traded in MCX exchange from 2003
to 2013.
Year
Commodity
Contract
Value (Rs. In
Lakhs) x
Quantity(In 000's)
gm y
200
5 GOLD 12268.75 2013
200
6 GOLD 3940704.99 632843
200
7 GOLD 17551330.18 2600407
200
8 GOLD 89636572.52 9957351
200
9 GOLD 71977660.21 7604891
201
0 GOLD 171474192 14024217
201
1 GOLD 184997191.4 12144967
201 GOLD 219874783.8 12052225
2
201
3 GOLD 314713353.7 12655760
201
4 GOLD 305672442.6 10287609
201
5 GOLD 240012639.5 8385363
Sum 1619863140 90347646
Mean 147260285.41 8213422.36
Standard Deviation 117070941.3 4978302.189
Coefficient of
correlation 0.793591101
Calculation of Coefficient of correlation:
= 0.79
Inference: The above calculation of coefficient of correlation between
the value and quantity of gold which is traded in MCX from 2005 to
2015 is 0.79, which concluded that there is a positive coefficient of
correlation between value and quantity of gold futures market. And the
volume of gold which is traded is dependent on the value invested in
gold.
Table 4.7: Table showing Summary statistics of daily gold futures
contracts
Standard Contracts Mini Contracts Spot
Futures
Price
Futures
Return
Volume
Value
Futures Pric
e
Future
s Return
Volume
Value
Price
Return
(INR) (%) (KG)
(Million INR)
(INR) (%) (KG)
(Million INR)
(INR)
(%)
Mean7,70
6 0.0515,567
13,736
7,709
0.05
260.21
239.01
7,695
0.05
Median7,70
4 0.066,83
14,56
37,84
10.06
51.85
38.03
7,725
0.02
Maximum
10,653 3.95
93,857
88,438
10,698
4.11
2,205
2,332
10,710
3.8
Minimum
5,646 -6.52 2 1.16
5,663
-6.41 0.1 0.06
5,600
-4.81
Standard
Deviation
1,545 0.85
16,626
15,653
1,532
0.85
358.51
343.13
1,517
0.87
No Of Obs
1,227
1,220
1,227
Inference: From the above table this table reports the summary statistics
of standard and mini old futures contracts traded on the Multi
Commodity Exchange of India Ltd (MCX) during November 2003
December 2007. Futures price are closing price of futures contract in
INR. Futures returns are calculated from daily log price changes, ln
(Ft/Ft-1), expressed in percentages. Spot returns are calculated as daily
log price changes, ln (St/ St-1), expressed in percentages. The standard
contract series includes 1,227 observations, 25 contracts from 10
November 2003 - 31 December 2007. The mini contract series includes
1,220 observations, 40 contracts from 20 November 2003 - 31
December 2007
Table 4.8: Table showing Correlation and integration test
Panel A: Pearson Correlation CoefficientsVariable
VOLS
VOLM S ΔFt
M ΔFt ΔSt
VOLS1.00
0 0.783
-0.01
8
-0.02
5
-0.01
2VOLM 1.000 - - -
0.033
0.041
0.021
S ΔFt1.00
00.94
80.32
7
M ΔFt1.00
00.35
1
ΔSt0.35
1
Panel B: Johansen trace test for co-integration
Log Price SeriesHypothesi
sTrace
statistic0.05 Critical
valueStandard and
spot r = 0 47.55 15.495Standard and
spot r <=1 0.208 3.842Mini and spot r = 0 45.509 15.495Mini and spot r <=1 0.163 3.842Standard and
mini r = 0 44.444 15.495Standard and
mini r <=1 1.061 3.842
Inference: Panel A of this table provides the Pearson correlation
coefficients among return and volume variables. VOLS is the natural log
of volume of standard gold futures contracts. VOLM is the natural log of
volume of mini gold futures contracts. S ΔFt, M ΔFt, and ΔSt are the
returns of standard contracts, mini contracts and spot gold, respectively.
Panel B of this table reports the results of Johansen Trace test statistics
for co-integration of futures and spot natural log prices. Let r denote the
number of co-integrating vectors. The co-integration test includes five
lags length.
Graph 4.5:- Graph showing Historical Gold prices since 1950-2001 in
U.S.($) currency
Graph 4.6:- 1Graph showing Gold Reserves of Top 10 Countries
CHAPTER-IV
SUMMARY OF FINDINGS
5.1 Major Findings
There is positive correlation between value and volume of gold
traded in MCX from 2005 to 2015.
Mini contracts contribute to over 30% of price discovery in gold
futures trade even though they account for only 2% of trading
value on the MCX.
Investors can easily predict the future prices of the commodities
and hedge their positions.
Investors are aware about commodity future market.
Dollar depreciation / appreciation
World distress
Increase in money supply
Inflation
5.2 Fifteen Fundamental Reasons for bullish run of Gold
1. Global Currency Debasement:
The US dollar is fundamentally & technically very weak and should fall
dramatically. However, other countries are very reluctant to see their
currencies appreciate and are resisting the fall of the US dollar. Thus, we
are in the early stages of a massive global currency debasement, which
will see tangibles, and most particularly gold, rise significantly in price.
2. Investment Demand for Gold is Accelerating:
When the crowd recognizes what is unfolding, they will seek an
alternative to paper currencies and financial assets and this will create an
enormous investment demand for gold. To facilitate this demand, a
number of new vehicles like Central Gold Trust and gold Exchange
Traded Funds (Elf's) are being created.
3. Alarming Financial Deterioration in the US:
In the space of two years, the federal government budget surplus has
been transformed into a yawning deficit,which will persist as far as the
eye can see. At the same time, the current account deficit has reached
levels which have portended currency collapse in virtually every other
instance in history.
4. Negative Real Interest Rates in Reserve Currency (US dollar):
To combat the deteriorating financial conditions in the US, interest rates
have been dropped to rock bottom levels, real interest rates are now
negative and, according to statements from the Fed spokesmen, are
expected to remain so for some time. There has been a very strong
historical relationship between negative real interest rates and stronger
gold prices.
5. Dramatic Increases in Money Supply in the US and Other
Nations:
US authorities are terrified about the prospects for deflation given the
unprecedented debt burden at all levels of society in the US. Fed
Governor Ben Bernanke is on record as saying the Fed has a printing
press and will use it to combat deflation if necessary. Other nations are
following in the US's footsteps and global money supply is accelerating.
This is very gold friendly.
6. Existence of a Huge and Growing Gap between Mine Supply and
Traditional Demand:
Gold mine supply is roughly 2500 tons per annum and traditional
demand (jewellery, industrial users, etc.) has exceeded this by a
considerable margin for a number of years. Some of this gap has been
filled by recycled scrap but central bank gold has been the primary
source of above-ground supply.
7. Mine Supply is anticipated to Decline in the next Three to Four
Years:
Even if traditional demand continues to erode due to ongoing worldwide
economic weakness, the supply demand imbalance is expected to persist
due to a decline in mine supply. Mine supply will contract in the next
several years, irrespective of gold prices, due to a dearth of exploration
in the post Bre-X era, a shift away from high grading which was
necessary for survival in the sub-economic gold price environment of
the past five years and the natural exhaustion of existing mines.
8. Large Short Positions:
To fill the gap between mine supply and demand, central bank gold has
been mobilized primarily through the leasing mechanism, which
facilitated producer hedging and financial speculation. Strong evidence
suggests that between 10,000 and 16,000 tones (30- 50% of all central
bank gold) is currently in the market. This is owed to the central banks
by the bullion banks, which are the counter party in the transactions.
9. Low Interest Rates Discourage Hedging:
Rates are low and falling. With low rates, there isn't sufficient contango
to create higher prices in the out years. Thus there is little incentive to
hedge, and gold producers are not only hedging, they are reducing their
existing hedge positions, thus removing gold from the market.
10. Rising Gold Prices and Low Interest Rates Discourage Financial
Speculation on the Short Side:
When gold prices were continuously falling and financial speculators
could access central bank gold at a minimal leasing rate (0.5 - 1% per
annum), sell it and reinvest the proceeds in a high yielding bond or
Treasury bill, the trade was viewed as a lay up. Everyone did it and now
there are numerous stale short positions. However, these trades now
make no sense with a rising gold price and declining interest rates.
11. The Central Banks are nearing an Inflection Point when they
will be Reluctant to provide more Gold to the Market:
The central banks have supplied too much already via the leasing
mechanism. In addition, Far Eastern central banks that are accumulating
enormous quantities of US dollars are rumored to be buyers of gold to
diversify away from the US dollar.
12. Gold is increasing in Popularity:
Gold is seen in a much more positive light in countries beginning to
come to the forefront on the world scene. Prominent developing
countries such as China, India and Russia have been accumulating gold.
In fact, China with its 1.3 billion people recently established a National
Gold Exchange and relaxed control over the asset. Demand in China is
expected to rise sharply and could reach 500 tons in the next few years.
13. Gold as Money is Gaining Credence:
Islamic nations are investigating a currency backed by gold (the Gold
Diner), the new President of Argentina proposed, during his campaign, a
gold backed peso as an antidote for the financial catastrophe which his
country has experienced and Russia is talking about a fully convertible
currency with gold backing.
14. Rising Geopolitical Tensions:
The weakening conditions in the Middle East, the US occupation of Iraq,
the nuclear ambitions of North Korea and the growing conflict between
the US and China due to China's refusal to allow its currency to
appreciate against the US dollar headline the geopolitical issues, which
could explode at any time. A fearful public has a tendency to gravitate
towards gold.
15. Limited Size of the Total Gold Market Provides Tremendous
Leverage:
All the physical gold in existence is worth somewhat more than $1
trillion US dollars while the value of all the publicly traded gold
companies in the world is less than $100 billion US dollars. When the
fundamentals ultimately encourage a strong flow of capital towards gold
and gold equities, the trillions upon trillions worth of paper money could
propel both to unfathomably high levels.
Other Findings
In India MCX is trading in bullion market.
Goldsmiths get their raw material from wholesale dealers.
They fix the prices on daily trading bases.
Hence there is positive correlation between both market traders can
easily predict the future prices of the commodities and hedge their
positions.
For gold price fluctuation main reasons are
1. Dollar depreciation / appreciation
2. World distress
3. Increase in money supply
4. Inflation
CONCLUSIONS AND RECOMMENDATIONS:
Both Spot Gold & Future Gold Markets are positively correlated
the traders have knowledge about the commodity demand and
supply and their price fluctuations. So India Info line Limited can
approach these traders and they can easily convince them so these
people are the targeted customers for India Info line Limited.
More Awareness program has to be conducted by India Info line
Limited consultants so that already aware investor takes the
challenge to invest in this commodity future market. Because since
this was new to the market and also risky but gives good return. So
it can be done through by giving advertisements in local channels,
Newspapers, by sending E-mail to present customers etc.
From survey it is found that most of the potential customers are
concerned about the genuine information and moderate brokerage
so India Info line Limited can look upon this. If it can give good
information and charge moderate brokerage it will help to attract
more and more customers..
The best opportunities for investors to protect themselves against
the coming financial reckoning are with precious metals and
mining stocks.
Both the markets are positively correlated the traders have
knowledge about the commodity demand and supply and their
fluctuations
More Awareness program has to be conducted by consultants so
that already aware investor takes the challenge to invest in this
commodity future market. Because since this was new to the
market and also risky but gives good return. so it can be done
through by giving advertisements in local channels, Newspapers,
by sending E-mail to present customer etc.
From study it is found that most of the potential customers are
concerned about the genuine information and moderate brokerage
so MCX can look upon this. If it can give good information and
charge moderate brokerage it will help to attract more and more