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Commodity Trade Questions - Essay Example

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Name Institution Question 1 What is GAFTA and what does it mean on behalf of its members? According to (Abedini & Peridy, 2007 p.1), this is an agreement which was signed in 1997 among 14 Arab states. By signing this document, the 14 Arab states had a vision of achieving Greater Arab Free Trade Area by the 7th year of the new millennium…
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Commodity Trade Questions
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Download file to see previous pages The regulations were set at 40%. GAFTA is the only agreement that comprises of all the Arab states coming together to agree on trade relations. It was also guided by politic institutions which include the Gulf Cooperative Council and Arab League. It removes several walls that would have prevented an easy flow of trade which include the tariffs, monetary, administrative and NTBS. It has well defined rules from the routes of these communities. Benefits With this agreement, All the member states are expected to expand their intra-regional trade. Production is bound to increase since his agreement will encourage exploitation of comparative advantage and scale economies. With an increase in competition in the market, there will be a choice for consumers as companies are going to struggle and venture in other form of producing different products. Rules and regulations of trade will improve as import prices are going to go down. With GAFTA in effect, regional development is going to be noticed drastically. Question 2 How to reduce the risk for global commodity trader Since there is high profit expected in any global commodity trade, the risks are also high. According to (Williams, 1999), when one is involved in commodity trading, he is bound to lose more cash than what he takes to the bank. Always have a strategy to control some risks. If you have a valid risk plan, it will warn you when to indulge in the risk or run away. A global commodity trader should interpret all the risks involved in a business deal so that he does not get confused in the time of when to stay put or to run. Every commodity global trader should have established a specific price so as to prevent losses unlike when he does not have a stop price. If this trader has a stop price he is more likely to manage his losses and vice Versa. Risks due to language barriers can be solved with the presence of an interpreter or trading in the market where there is a language spoken in common. The trader should always make sure that he is trading with registered and incensed traders. He should upgrade his license every time it is required of him to avoid problems that may arise from it. It is up to the seller to determine where to deliver his goods. The place of trade should be a peaceful place free from war. He should be positively confident that the country he is trading in has a foreign currency. It is up to the seller to have the right quality and quantity of goods needed in the market foe efficiency. He should also learn about the markets he is involved in and try to understand them fully. This includes their terms and conditions. He should understand the culture of the particular people he is trading with and should avoid all corrupt deals as they are likely to backfire. Learn about all the governments you are involved in during trade and know their capabilities of them paying their debts. There are other markets that a global commodity trader can consider. According to (Cark, Lesourd, & Thieblemont, 2001) trading of commodities, markets may be physical or derivative. Question 3 What do the following ICC Inco terms stand for? According to (Moens & Gillis, 1998) EXW: this Inco term stands for EX Works/Ex factory. When doing business under the influence of this policy, the seller is supposed to make the products available to the buyer at the sellers’ business premise. It is up to the buyer to collect it. WWD: Weather Working Days. This means ...Download file to see next pages Read More
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