afm ppt final (1)

7/27/2019 Afm Ppt Final (1)

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Topic-

Arbitraging by bullion traders

Group members:-

• Jejoy Fernandes

•

Sachin Lohar• Siddhesh Mali

• Siddhesh Shinde

• Vishesh Rane• Amol Jadhav



Arbitrage

Arbitrage is the market activity of buying and selling of same security on exchanges orbetween spot prices of a security and its future contract.

Definition: Arbitrage is the profit making market activity of buying and selling of samesecurity on different exchanges or between spot prices of a security and its futurecontract. Here exchange refers to the stock market where shares are traded, like the

NSE and BSE.Description: A stock is traded in multiple stock exchanges and on each stock exchangethe quoting price may be a bit different. Hence arbitrage as a practice is followed totake advantage of the price disparity. Originally arbitrage occurred in the currencymarket, but now it applies equally in the commodity, futures and the stock market aswell.

For example: Infosys is quoting at Rs 2750 on the BSE and Rs 2760 on the NSE. Henceone can sell the stock on the NSE and buy from the BSE at the same time. This tradewill lead to a profit without any risk. This process is arbitrage.



What is bullion?

• Bullion refers to any precious metal in a form in which

its primary value comes from the worth of the metal,

not artificial currency value.

• Bullion is most often traded in the form of coins

minted by national governments, or in bulk ingots.

• While government issued coins have a nominal value

assigned to them upon minting, this value is virtuallyalways overshadowed by the commodity value of the

metal itself



Definition of 'Bullion Market'

• A forum through which buyers and sellers trade pure gold andsilver. The bullion market is open 24 hours a day and is primarily anover-the-counter market, with most trading based in London. Thebullion market has a high turnover rate and most transactions areconducted electronically or by phone. Gold and silver derive their

value from their industrial and commercial uses; they can also actas a hedge against inflation.

• The bullion market is just one of several ways to invest in gold andsilver. Other options include exchange-traded funds, futures,options and mutual funds; these can be more appealing to

investors, because they offer greater flexibility. Bullion offers lesstrading flexibility than other gold and silver investments, because itis a tangible object that comes in bars and coins of establishedsizes, which can be difficult to buy or sell in specific amounts.Bullion is also expensive to store and insure.



Indian Bullion Market:

Current Scenario• India is the leading consumer and importer of bullion. It consumes nearly 800 MT

of gold, which accounts for 20 per cent of world gold consumption. Out of this,

around 600 MT of gold goes into making jewellery.

• The domestic bullion and jewellery market is estimated to be around US$ 16.1

billion, which is expected to grow to the size of US$25 billion within 2-3 years.

• India’s gem & jewellery sector commands around 80% of the jewellery tradeworldwide. Total Export of jewellery in April 2009 was at Rs.5749.56 Crore.

• The Indian gems and jewellery industry is one of the fastest growing segments in

the Indian economy. The annual growth rate is approximately 15 per cent

• Gems and jewellery worth US$ 17.79 billion was exported during April 2008 to

February 2009. The United Arab Emirates (UAE) was the largest importer of gemsand jewellery from India in 2008-09, with a share of 31 per cent. This was followed

by Hong Kong with 25 per cent and the US with 20 per cent. The gem and

jewellery sector accounted for 13 per cent of India’s total merchandise exports.



Gold

• India is the world’s largest consumer of gold in tonnage

terms.

• It is estimated that about 800 tonnes of gold isconsumed in India last year (2007).

• According to World Gold Council (WGC), in 2007, Indiaaccounted for 22.9 per cent of global gold jewellerydemand and 53.8 per cent of all net retail investment(coins and bars).

• Gold demand has grown at an average annual rate of 10% since the repeal of the Gold Control Act in 1990,which had forbidden the holding of gold in bar form.



Table 1: Annual Demand* for Gold in Tonnes: 10-year Average,

1996 to 2005

India 675.0

United States 462.5

China 262.5

Turkey 175.0

Saudi Arabia 175.0

UAE 87.5



As shown in above table, gold imports have steadily risen from 410 tonnes in

2002 to 748 tonnes in 2005 and only fractionally fallen to 704 tonnes in 2006.

In value terms, the foreign exchange spent has more sharply risen from Rs

19,840 crore to Rs 61,433 crore because of the steady and sharp increases in

gold prices abroad.

Table : India 's Imports of Gold (Quantity and Value)

Year Imports (Tonnes) Prices in (Rs. crore)

2001 593.61 24156.382002 410.29 19839.88

2003 441.93 23657.52

2004 591.92 35105.06

2005 748.04 45811.19

2006 703.91 61432.90

2007 773.60 61412.50



Domestic Demand-Supply Scenario

• India was the world's largest gold consumer at 773.6 tonnes in2007. The country's domestic gold production was abysmally low at3.05 tonnes during the year 2006-07, compared with 3.53 tonnesduring 2005-06. In Q4’07, however, due to rise in prices thedemand declined drastically by 64 percent to generate demand of

only 83.9 tonnes from 230.1 tonnes in Q4’06.

• India imported an estimated gold worth US$14,451mn in 2007. Theimports would had been much more, but for the significant rise ingold prices in the last quarter of the year.

• Domestic consumption is influenced by monsoon, harvest andmarriage season.



Silver

• India is primarily a silver importing country, as theproduction of India is not sufficient to satisfy the ever-growing domestic demand. The production of silver inIndia stands out at the figure of around 2.1 million

ounces placing it at the 18th position in the list of major silver producing countries. The import of silver inIndia hovers over 110 million ounces that shows thehuge size of Indian domestic demand.

• Peru is the world's leading producer of silver, followedby Mexico, China, Chile, Australia and Poland.Silver



Top 10 Silver Producing Countries in 2007

(millions of ounces)

Peru 112.3Mexico 99.2

China 82.4

Chile 62.0

Australia 60.4Poland 39.5

Russia 38.0

United States 37.3

Canada 25.8

Kazakhstan 22.7



Indian Scenario

• In India, industrial demand of silver occupies a smallshare as compared to Japan and US.

• India's demand of 3000-4000 tonnes silver comes fromrural India, where agriculture output is determining

largely buy the June to September monsoon.• Between the months of January and July 2008, India's

imports were lackluster at only 54 tonnes. But with theprice of silver declining by 15% in the last few months,the demand has started picking up.

• Most of the India's silver requirements were metthrough imports from China, UK, CIS, Australia andDubai



Platinum

• Platinum is a rare precious metal. It is silvery-white inappearance, lustrous, ductile, and malleable.

• It has several unique chemical and physical propertiesthat make it essential in a wide range of industrial and

environmental applications.• It possesses high resistance to chemical attack,

excellent high-temperature characteristics, and stableelectrical properties.

• Platinum is also considered as one of the finest of all jewellery metals.



• Platinum demand in India has raised by more than 20% in 2011

from 10 tonne last year, driven by record sales by automakers, the

biggest users, and as moneyed consumers spur jewellery sales.

• It is estimated that about 70% of India's platinum imports goes intoautomobiles and the rest is used in jewellery, but the consumption

size is miniscule compared to the country's total gold market of 400-800 tonne.

Platinum’s rarity –

Platinum is 30 times rarer than gold as ten tons of raw ore must bemined on average to produce just one ounce of pure platinum –renders it an attractive investment alternative to such competingassets as stocks, bonds, and currencies. Some investors actuallyacquire platinum as a surrogate for gold



Issues faced by the bullion trade and

industry

• Bullion trade is fragmented and unorganized.

• Bullion market has witnessed high degree of volatility inprices,

• Export of Indian gold bar is not allowed• Number of restrictions on import as well as export of gold.

• Price of gold and silver differ from place to place in Indiaeven at the same moment

• There is no national level trade and industry body, whichcan represent the bullion trade and industry

• India has huge household stock of gold and silver.



Genesis of IBMA

• In order to solve the issues faced by the bullion trade and industry,National Spot Exchange in association with the leading bullion dealers of India have endeavoured to set- up Indian Bullion Market Association orIBMA.

• Indian Bullion Market Association (IBMA) is the national level body beingset-up to represent the Indian bullion trade and industry.

• It is a consortium of leading bullion dealers and jewellery merchants of India, who have joined hands with National Spot Exchange Limited, thepan India Electronic Spot Market for commodities.

• The idea is to promote a professional organization dedicated towards thegrowth and development of bullion trade and industry. IBMA is committedto identify the inefficiencies involved in Indian bullion market and tocreate a momentum to remove such inefficiencies in a gradual but steadymanner



Objectives • To set up a national level trade association for representing bullion importers,

dealers, traders, jewellery merchants

• To identify the problems faced by various stakeholders connected with bulliontrade and industry

• To interact with the Central Government, State Governments, RBI, nominated

agencies, banks and other regulators

• To set up the process for approval of local refineries and domestic brands of goldand silver bars

• To introduce a system of sale of gold coins and silver coins made by local refineriesand domestic brands

• To create linkages between domestic prices and international prices

• To promote savings and investments in gold and silver

• To notify a code of conduct and ethics to be followed by bullion dealers



National Spot Exchange Limited (NSEL)

• National Spot Exchange Limited (NSEL) is the national –level,institutionalized, electronic, transparent spot trading platform forcommodities.

• NSEL provides customized solution to farmers, traders, processors,exporters, importers, arbitrageurs, investors

• NSEL is operational in 16 States in India, providing delivery-basedspot trading in 52 commodities.



e-Series products

• NSEL has introduced e-Series products in commodities for retailinvestors. These are investment products that enable investors tobuy and sell commodities in demat form and hold them in theirdemat account.

• NSEL has launched e-Gold, e-Silver, e-Copper, e-Zinc, e-Lead, e-Nickel and e-Platinum

• Investors who wish to purchase e-Series products are required toopen beneficiary accounts with NSEL-empanelled DepositoryParticipants (DPs).National Securities Depository Ltd. (NSDL) andCentral Depository Services (India) Ltd. (CDSL), are the depositoriesfor holding commodity units in the electronic form



Symbol Unit Buy Price Sell Price

E-GOLD 1 GRAMS 2621.10 2733.80

E-SILVER100

GRAMS4000.00 4090.00

E-COPPER 1 KGS 465.00 495.00

E-ZINC 1 KGS 130.15 143.70

E-LEAD 1 KGS 158.60 169.90

E-NICKEL 1 KGS 990.00 1035.00

E-PLATINUM 1 GRAMS 2985.00 3020.00



Bullion traders

• Bombay Bullion Association - Mumbai

• The Madras Jewellers & Diamond Merchants

Association - Chennai

• West Bengal Bullion Merchants & Jewellers

Association - Kolkata

• The Delhi Bullion & Jewellers welfare

Association - Delhi

• The Bullion Merchants Association - Delhi



Risks involved in bullion trading:

(i) Unforeseen Circumstances

(ii) Market Volatility

(iii) Market Risk

(iv) Leverage Risk(v) Counterparty Risk

(vi) Transactions in other Jurisdictions

(vii) Market Information

(viii) Systems Risks



Conclusion

afm ppt final (1)

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