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SPECULATION AND BLACK MARKET

SpeculationSpeculation consists of a set of commercial and financial operations ,whose purpose is to obtain a financial profit ,based on price fluctuation.

If a speculator believes the supply of a good will decrease in the future (driving up its price), the speculator can make money by buying the good now when the price is low and selling the good in the future when the price is higher.

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TYPES OF SPECULATION*DIRECT HOARDING*SPECULATION IN FUTURE MARKET

Out of StorageConsumption Future= Production + Storage= dGain in ValuebPrices and Speculation5

Consumption Today= Production - StoragecInto StoragePrice with SpeculationLoss in ValueProduction TodayTodays Price with no SpeculationaSpeculation Smoothes Prices when Supply Decreases QuantityPrice

The blue areas in the diagram show the value that speculators move from today to the future. The same quantity is more valuable in the future when supplies are low than today when supplies are plentiful.

SPECULATION IN STOCK MARKET

Stock Market SpeculationPeople bought stocks and paid only part of the cost at the time of purchase. Even though it wasnt paid for, the investor could sell it. If stock went up, all could be paid. This made prices higher than what they were really worth.

HOW SPECULATION AND BLACK MARKET AFFECT THE STOCK MARKET?

Over-BorrowingBorrowing more money that they could afford to repay. Hurts banks, so banks cant loan money to businessesBusinesses dont get paid, people get laid off work

Personal DebtOwing more that you can ever pay off (homes, cars, boats, etc.)

Industrial OverproductionFactories and farmers produced more good than they could sell. Had to stop production, so people loose jobs. Farmers drove prices so low they couldnt pay debtsthen drought hit.

SPEULATION IN OIL MARKET

FACTORS DRIVNG OIL PRICE VOLATILITYMarket fundamentals:-Fluctuations in supply, demand, and market power Some fundamentals related to expectations of future production, consumption, so not easily observableTrading, especially speculation :- Traders can move prices away from fundamental values in some circumstances

Speculation is the focus of this PRESENTATION

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Prof. Robert J Weiner, George Washington University Oil Price Volatility: Asessing the Impact of Speculation17

Some memorable experience highlights speculation

Gulf Crisis as impetus for concernOil prices spiked, then plummetedLittle evident change in fundamentalsSpeculators, futures markets claimed responsible for market volatility 18

CRUDE OIL PRICES, $/barrel152025303540198919901991

Gulf Crisis

Prof. Robert J Weiner, George Washington University Oil Price Volatility: Asessing the Impact of Speculation18

sPECULaTON IN GOLD MARKET

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Dollar speculation creates local black market for goldA local gold trader working in Egypts black market said that currency speculation, in addition to the expansion of the black market trade in dollars, which has led to thedevaluing of the Egyptian pound, has created a black market for gold.This has created a recession inthe trade of precious metals, he said.Official prices for the sale of a gram of 18-carat gold recently reached EGP 245, or $35.3, with 21-carat gold grams reaching EGP 290 and 24-carat grams EGP 341.

SPECULATION IN ONION PRODUCTION

SPECULATION IN ONION PRODUCTIONOnion prices have again hit the roof in Mumbai, Delhi and other major cities after stabilizing briefly in August, leading the Centre to suggest that traders and speculators might be "artificially" increasing onion prices and has asked whether a seasonal shortage in supplies is being exploited."Governments of Delhi and Chandigarh were addressed to look into the possibility of traders and speculators creating an artificial price increase to take advantage of the seasonal shortage," a consumer affairs department status report on onions said

ONION PRICE RISE *Around 27.5 lakh tonnes of onions were stored in the country for consumption in 2013. Of this, 15.5 lakh tonnes were kept in godowns in Maharashtra and 1-2 lakh tonnes each in Gujarat, Bihar, Karnataka, Madhya Pradesh, Uttar Pradesh, Rajasthan and Tamil Nadu,

Onion prices are under pressure even this month as 90 percent of the stored onions from last year's crop are exhausted and only 3-4 lakh tonnes are available for consumption, the Consumer Affairs Ministry said in the status report on onions.

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HOW SPECULATION AND BLACK MARKET AFFECT THE COUNTRY?

THANK YOU

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