Recently the Finance minister launched the first options security with gold as the underlying asset ...........

Economic Affairs Foreign Trade - Trends and Policy

Recently, the Finance minister launched the first options security with gold as the underlying asset for trading on Multi Commodity Exchange Ltd. What are the benefits of Gold Options?

It allows the investors to hedge volatility in the price of gold in the market.
It will help in wider participation of investors in commodity speculation markets.
It helps in formalizing Gold trade in India leading to improved transparency in gold trade.

Select the correct answer using the codes below.

1 and 2 only

2 only

1 and 3 only

1, 2 and 3

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Explanation:

We have covered the concept of Options in an earlier test.

Statement 1: The derivative instrument allows investors to enter into contracts to either buy or sell gold sometime in the future at a pre-determined price, thus allowing investors to hedge any volatility in the price of the metal, for a price.

Statement 2: Options usually are cheaper than binding future agreements will help in the wider participation of investors in the realm of commodity speculation.

Statement 3: The introduction of a new financial instrument in India clears a path to building a vibrant market for commodities.

The commodity options would be taken up initially by hedgers, professionals and high net worth individuals. Later retail investors can participate if the bidding size is reduced.