Archive for September, 2010

Tata Steel, TCS and Madhucon Projects may witness some action today

Tata Steel, a part of the salt-to-steel conglomerate Tata Group, has decided to acquire 80% stake in the Direct Shipping Ore (DSO) project of Canada-based New Millennium Capital Corp for a consideration of around Rs 1,350 crore.

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IT major Tata Consultancy Services (TCS) has inked a significant multi-year agreement with SUPERVALU Inc. for a full services engagement.

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S Kumars Nationwide has mobilized $50 million worth of fresh funds through issue of equity shares to institutional investors.

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Jyothy Laboratories is expecting a turnover of Rs 500-crore from its largest selling fabric-care brand ‘Ujala’ by entering the competitive Rs 11,000-crore detergent market, competing with strong market leaders such as HUL and P&G. The company is planning to extend its business from Kerala to the rest of the South.

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Madhucon Projects’ promoted Simhapuri Energy (SEPL) has tied up funds for its 300 mega watt (MW) Phase II Thermal Power Plant at Krishnapatnam, SPSR Nellore District, Andhra Pradesh.

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Bank of Baroda has decided to takeover specific assets and liabilities of Mumbai-based Memon Cooperative Bank. In this regard, the company has received approval from Government of India and Reserve Bank of India.

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Dabangg Magic Powers In Stock Market

Salman Khan-starrer Dabangg created the euphoria at the box-office which has lifted the shares of Shree Ashtavinayak Cine Vision, the co-producer of the movie, which soared over 8 per cent on the Bombay Stock Exchange on Tuesday.

Shree Ashtavinayak Cine Vision company had made a strong opening on the BSE today and settled at Rs 25.50, reflecting a gain of 8.28 per cent.

During the session, the stock had climbed nearly 10 per cent to touch a month high of Rs 25.90.

“The Salman factor has helped the stock, witness a handsome gain. The movie is breaking records at the box-office, which is mirroring in the stock movement,” SMC Capitals Equity Head Jagannadham Thunuguntla said.

‘Dabangg’, which stars actor Shatrughan Sinha’s daughter Sonakshi Sinha also features Sonu Sood, Vinod Khanna and Dimple Kapadia, was made with a budget of Rs 18-crore and was reportedly sold to distributors for Rs 40 crore.

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Reliance Broadcast Network touches roof as its arm acquires Line V of DMRC

Reliance Broadcast Network is currently trading at Rs. 109.80, up by 5.20 points or 4.97 % from its previous closing of Rs. 104.60 on the BSE.

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The scrip opened at Rs. 109.75 and has touched a high and low of Rs. 109.80 and Rs. 109.75 respectively. So far 52,300 shares were traded on the counter.

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The BSE group ‘T’ stock of face value Rs. 5 has touched a 52 week high of Rs. 145 on 04-Dec-2009 and a 52 week low of Rs. 45.60 on 27-May-2010.

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Last one week high and low of the scrip stood at Rs. 109.80 and Rs. 96 respectively. The current market cap of the company is Rs. 506.47 crore.

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The promoters holding in the company stood at 61.47% while Institutions and Non-Institutions held 1.14% and 37.38% respectively.

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Reliance Broadcast Network (RBNL)‘s Out of Home (OOH) arm — Big Street — has acquired Line V of the Delhi Metro Rail Corporation (DMRC) for its outdoor advertising activities for a period of five year’s. The company has already acquired Line II and III of the DMRC. With the latest win, it now holds 40% of premium inventory in the DMRC network.

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The OOH market in India is estimated to be around Rs 1,700 crore. The company is looking to capitalize its OOH inventory with the Line V acquisition as DMRC attracts around 1.5 million commuters daily.

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The Anil Dhirubhai Ambani group company operates the Big 92.7 frequency modulation (FM) radio station . It runs 45 radio stations. The company was demerged from Reliance MediaWorks in August 2009.

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VEGA IMPACT IN OPTION PRICING FINAL PART :)

The Vega is highest in ATM option and slightly less at OTM and ITM options. The change in Implied Volatility will impact the most on the price of ATM option ascompared to the ITM and OTM options. The Implied Volatility can only impact the time value not the intrinsic value of the option so while comparing in betweenthe OTM and ITM options the OTM option’s Vega will be higher.

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The Impact of the Theta (time decay) to the Vega is negative. As the time passes if other thingremain unchanged the Vega decrease near to the expiration. As stated above the Vega valueis the most at ATM options and near to expiration the time value get decreased so does theVega. This is also called as Vega decay.

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The graph display that keeping all factors same(Volatility, price of underlying) the ATM Strikeoption of nifty the Vega on decreasing mode as it comes near to the expiration. When thedays left for expiration is 24days the Vega is 5.521 and 4.366 when it only 15 days are leftwhereas it is only 1.128 on the last day.There are various volatility strategies which options traders execute at the times of high/lowvolatility.

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For example, during times of earnings, elections or other major events thevolatility generally raise and to capture this opportunity the trader or investor buy strangle/straddle which is Vega positive strategy.Many traders time to time require adjusting their position to reduce the risk exposure in the market. This can be done by various ways it can be either adjustingvega with decreasing theta or adjusting vega with increasing the theta. If there is a large movement expected in the market then a buy call or put, debit spread,long strangle and long strangle adds the vega to the position but there will be risk of theta decay whereas on sideways market long ATM butterfly and long ATMcondor decrease the Vega as well as theta in the position.

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If the goal is to increase the vega and theta then the calendar spread, double calendar and Iron condorstrategy should be added to the portfolio whereas the sell iron condor, ATM Calendar and sell call or put are vega negative and theta positive strategies.In nutshell, the option trader/investor should understand the risks involved in it before entering into the trade and how the volatility impacts the position.Before entering into a trade one must have view about the direction and volatility. If there is an expectation of rise in volatility then long strangle, long straddle,debit spread, ratio and calendar spread should be followed whereas in expectation of fall in volatility one should go for short straddle, short strangle, creditspread, backspread and butterfly spread.

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VOLATILITY (VEGA) IMPACT IN OPTION PRICING Part 1:)

Options are non linear products, volatility being an important price determinant. Volatility can be looked at as a huge potential O reward as well as risk for the option traders. So why is volatility so important for option traders? Because, it tells the possible price changes of underlying in future. In this article we will try to understand what Vega is and how change in volatility affects the option pricing.

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Vega measures the sensitivity of an option to the Volatility of the underlying. How much option should lose/gain value with a movement in implied Volatility by 1%. To understand Vega we first need to understand Implied Volatility. Implied Volatility is the estimated or expected volatility of a security’s fair price which we derive from a model such as the Black-Scholes Model.

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In addition to required factors such as market price, expiration date, interest rate and strike price, implied volatility is also used in calculating an option’s premium. The most important factor in option trading is to manage the Vega as other factors are known to the investor/trader like time to expiry, spot and strike price and interest rate.

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It means that a call option trading @ 45 and having Vega of 0.47, if the Implied Volatility rises by 1% then the option value will be 45.47. An option price rises due to the expectation that increase in Volatility rise, with the possibility for an option to get expired in favor.

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Let’s understand Vega through simple option positions. Long Call and Put have the positive Vega whereas short Call and Put have the negative Vega. There is no Vega for the stock. Here, positive Vega means that raise in Implied Volatility favor the option. Negative Vega means that fall in Implied Volatility favor the option.

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Let’s take a simple example on S&P CNX Nifty options. In Nifty a Bear call spread for the expiry Aug2010 on 16 Aug 2010 where we short 5400 Call @ 95 whose Vegais 3.18 and Long 5500 Call @36 whose Vega is 3.38. The long call Vega is positive and short call Vega is negative. So the net Vega of this position is +0.20. If theImplied Volatility rises by 1% (keeping other factors same) the net premium of 59 will rise to 59.20 and on fall by 1% it will shed to 58.80.

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Let’s Wait for the fianl part 🙂

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SILVER……GROWING AVENUE OF INVESTMENT

Recently silver, known as poor’s gold, is gaining not only against the dollar and other old world currencies but also outperforming gold. Due to high prices gold is loosing its own attraction from common man and importance of silver as precious metals is gaining momentum. The declining trend of gold/silver ratio indicate that silver become better destination for investment. Like gold, silver has retained rally momentum due to recent poor economic data that has caused investors to purchase Silver as a “safe haven” alternative investment. The pickup of silver industrial demand due to the emergence and growth of a number of new end uses, and continued strong investment demand is pushing silver prices sharply higher.

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Like all metals, London Bullion Market is the global hub for silver trading, while the New York’s Comex Futures dominate the solver fund activity. The world’s largest silver backed exchange-traded fund, the i Shares Silver Trust, said its holdings rose to 9,280.40 tonnes by Sept. 1 from 9,151.03 tonnes on August 5.

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Global demand- supply of silver According to World Silver Survey 2010 , global silver mine production rose last year, by almost 4%, its seventh straight annual increase to reach a record high of 22,072 ton.Peru is the world’s largest silver producing country followed by Mexico, China, Australia and Bolivia. GFMS is forecasting a further mine production rise of 3 per cent this year.

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According to GFMS, In the last ten years, the world jewellery demand was down 8 per cent and silverware as much as 38 per cent. And because of technology changes silver use in photography sector had suffered a major fall of 62 per cent. But as strengthening of belief in silver as a precious metal is the 145 per cent demand gain since 2000. The industrial application of silver is almost 48 per cent of total silver use.

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Indian demand- supply of silver Though India is generally believed to have a great appetite for gold, Indians also love to possess silver in their homes for jewellery. India is voluminous importer of silver. Of the 4,000 tonnes that India used to import annually, around 2,600 tonnes was used to make jewellery and ornaments. MMTC is the largest importer of gold in the country. The firm’s silver imports fell by more than 44% in the fiscal year to end March 2010, as high prices dented demand. More than 60% of India’s silver demand comes from farmers.

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Last year silver demand dipped because the country experienced one of the worst monsoon seasons in over four decades. However, with much better monsoon this year, the situation is set to reverse and India’s appetite for silver has also been boosted because gold has become too expensive at current prices. According to official data, India’s silver imports in the first six months of 2010 are up 579%.

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From April this year, India has also started hallmarking of the white precious metal to ensure purity. With increasing amounts of impurities in jewellery being sold across the country, public sector trading major, Minerals and Metals Trading Corporation (MMTC) is banking on its branded jewellery, silverware gift items and coins to push up its market share.

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Like gold, silver has not enjoyed equal recognition from hedge funds, pension and retirement funds, insurance companies, and sovereign wealth funds– but this is likely to change as fund managers recognize silver’s relative value and simply wish to diversify their precious metals exposure.

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Outlook

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Good monsoon, high gold prices and global trends may help silver outperform the yellow metal in India. Better harvesting will underpin demand from the farming community this year. Since gold prices are trading over `19,000 per 10 gm, many rural families are now switching to silver.The weakening of rupee also supporting the prices.

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More and more people here are using silver as a speculative commodity play as many others are looking at it as a safe haven asset. The overall market sentiment is bullish for silver. So it could be a more decisive silver price breakout before the year ends to touch the level of `33500.

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COMMODITY WEEKLY COMMENTARY 13th – 17th September 2010

Silver along with gold once again shoot up last week as international prices tested $20 and $1255 respectively on COMEX division. Each time a rise in gold hits the headlines, it steals the limelight from silver. But this time silver has not only followed rallies in gold, but usually out performed, as can be seen in a fall in the gold/silver ratio. Prices went towards north last week as global stocks tumbled and the euro slipped on renewed fears about the health of the global economy.

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Base metals witnessed see saw movements as highly volatile currency market is rolling the prices in both direction. However, bias remained down side as fresh concerns about the health of the European banking sector fed a wave of risk reduction in the broader market and helped drag red metal (copper) prices away from four-month highs. Energy counter also remained under pressure as investor’s eye U.S economic strength and demand on fuel, while the dollar gains against a basket of foreign currencies amid the jittery sentiment. In other related news the dull hurricane season also limiting the upside in prices. The U.S. National Hurricane Center was monitoring three tropical systems in the Atlantic basin, one approaching the Caribbean Sea and two near Africa’s west coast. The NHC said cloudiness and showers over the Leeward Islands and northeastern Caribbean Sea were associated with Gaston’s remnants, but the system had just a 20 percent chance to become a tropical cyclone.

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Despite holiday’s shortened week, agro commodities witnessed active trading. After a noteworthy decline, oil seeds and edible oil counter was somehow able to cap the downside on the news of better soyameal export amid short covering in overseas market. Crude palm oil was also trading up. On the other hand upside was limited on the absence of fresh demand.

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Favourable weather and better outlook of crop shed the gain of wheat futures. Northward journey of maize futures supported by multi month’s higher prices in CBOT surprised the market players. Spices counter traded with downside bias moreover. Chilli, jeera, turmeric and cardamom were down on lower offtake in physical market. Turmeric futures were in complete grip of bears on lower demand in spot market. It touched multi week lows on NCDEX as well. It was only pepper in spices counter which propped up on fresh buying. Mixed sentiment in guar compelled guarseed to trade in slim spread whereas guargum was rangebound with upside bias.

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Chana continued to witness downtrend following lower demand in the domestic market.

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Weekly Update 13th – 17th September 2010

The Indian markets saw good gains in the week gone by, as foreign investors continued to put money in search of growth which is lukewarm in major part of the world. According to the latest FED beige book finding, the U.S. economy has shown “widespread signs of a deceleration” in mid-July through the end of August. The Beige Book showed that within manufacturing, weakness was largely related to construction while strength was in auto-related production, including production of steel indicating that the FOMC may consider stimulus package in the September meeting.

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Deficit concerns pertaining to European countries also waned when Portugal managed to clock bids for 2.6 times the amount offered for sale of bonds due in 2021 compared to 1.6 times in the March sale. The better response to the bond sale gave relief to the investors over the health of European nations. Chinese government would continue to take measures in order to curb down speculation in property market and U.S. may call for protection against China imports are some of the concerns that are playing out in the market. Agovernment report showed that the manufacturers in Japan were optimistic for the fifth consecutive quarter. Japanese government is expected to revise up its estimate for the second quarter economic expansion as the companied have cut spending at the slowest pace since 2007.

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Going ahead, market will keep an eye on the RBI move in its monetary review due next week. There is a chance that RBI may leave policy rate unchanged for a while or tinker with Repurchase (Repo) rate by hiking it by 25 basis points. The expectations of good growth especially in the industrials have been built as the companies are now more confident about their expansion plans. The expected uplift in the manufacturing in the third quarter is likely to provide the gains in materials like cement and steel companies in terms of better realization of the products.

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Despite mixed cues from the global indices, Indian markets traded with the positive bias throughout the week. It almost tested the upper trend of the weekly channel so one should be careful for the week ahead and wait for the sustainability above that zone for confirmation of breakout before initiating fresh investment. Nifty has support between 5540-5475 and Sensex between 18300- 18000 levels.

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It was a truncated week for Indian market. Upside in bullions dazzled the eye of investors. Gold is trading near the mark of all time high as investors increased their long position in gold futures on safe haven buying. Mighty commodity crude, lost its shine on end of driving season in US amid comfortable stocks. Increasing short position in gasoline is adding further pressure on prices. Crude may trade in a range of $71-$76 dollar per barrel. Investors should keep a tight vigil on the data of US Michigan Confidence, advance retail sales etc, which is likely to provide further direction in commodities. As regards agro commodities it should be a good week for oil seeds and edible oil complex where investors may see some lower level buying. However, ample of stocks may cap the upside.

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COMMODITY WEEKLY COMMENTARY 6th-10th September 2010

International gold prices rose back above $1250 an ounce for the second time in a week, as government bonds ticked lower together with energy prices. Silver prices also touched a new 16-week high at $19.57 an ounce on international bourses while it made a life time high on MCX.

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Apart from bad economic news globally, a weak Rupee is also pushing up prices in India. Base metal pack also ended higher last week on positive manufacturing and improved jobless data from both China and US which pushed prices higher. However, lower dollar index also supported prices. After being top performer for many days, Nickel has marginally underperformed other base metals as inventories on LME increased. In energy counter, crude oil futures got jiggled in hands of both bulls and bears. Prices remained volatile for the week amid mixed fundamentals.

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On one hand, prices got support from improved economic data but upside was offset by building inventories. The positive sentiment was offset by the effect of the abysmal inventory status report.

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U.S commercial crude oil inventories increased by 3.4 million barrels from the previous week; at 361.7 million barrels. U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.2 million barrels last week, and are above the upper limit of the average range.

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It was an action pack week for agro commodities in which they agro commodities saw big movements. Most of the spices closed on negative note bearing in mind the overseas weakness coupled with arrivals in some spices. Dip in Brazilian and Vietnamese pepper parity put pressure on Indian pepper as well and hence we saw two week continuous weakness. Similar to pepper, jeera futures also dragged down on dull spot trading. There was no respite for turmeric futures and they fell like nine pins for straight seven week on low stock buying amid the news of increase in acreage in Andhra Pradesh.

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Cardamom was sideways, while chilli was marginally up on short covering tracking the firm spot markets. Due to strong arrivals in major mandies coupled with beginning of fresh sowing of kharif pulses, chana futures surrendered their previous gain to some extent. Timely arrival of monsoon in southern and western regions has improved the sowing activity. Selling intensified in oil seeds and edible oil on the back of better crop estimate together with weakness in overseas market. Damaged crops in Russia, Europe and Canada, boosting demand for U.S. supplies to make animal feed, food and fuel revived maize futures. Guar counter was up on lower level buying.

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TR/J CRB INDEX

Overview: The CRB Index, founded by Commodity Research Bureau in 1957, is the most widely followed Index of commodities futures which measures the overall direction of commodity sectors and the index is calculated by Thomson Reuters/Jefferies (TR/J CRB). The name of the index changed to the Reuters CRB Index in 2001. Since 1961, The CRB Futures Price Index has been adjusted on a regular basis in order to maintain its relevance. The Index has had 10 adjustments with the last being in 2005. Over the years, commodities have been replaced by more liquid and significant contracts. The last (10th) revision set up monthly rebalancing and rollover schedules. Currently “RJ/CRB” Index takes into account the prices of 19 commodity futures contracts. ICE Futures U.S. is the exclusive marketplace for futures and options contracts on the Reuters Jefferies/CRB Index.

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Weighting Factors: A four tiered approach These 19 commodities are weighted on a 4- tiered grouping system designed to reflect the significance of each commodity.

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Group I Petroleum product : Group I includes only petroleum products –W.T. I . c r u d e o i l ,h e a t i n g o i l a n d unleaded gasol ine which are the most liquid, widely followed and economically significant commodities futures contracts traded globally and historically have contributed meaningful return

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Group II Highly Liquid Commodities:Group II in the Reuters/Jefferies CRB Index consists of seven highly liquid commodities.

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Group III Liquid Commodities: This group of four commodities is also highly significant and liquid but slightly lower level than those in Group II. These commodities help further the goals of diversification, broad representation and liquidity of the Index.

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Group IV Diversifying Commodities: This final group of five commodities provides meaningful diversification to the Index, bolstering the exposure to the Softs, Grains, Industrial Metals, Meats and Precious Metals markets.

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Rollover & Rebalancing Methodology: To maximize liquidity and simplicity, the Reuters/Jefferies CRB Index uses a four day rollover schedule for each commodity beginning on the first business day of the month and ending on the fourth business day.

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The Reuters CRB Index is continuously rebalanced through geometric averaging, .The Reuters/Jefferies CRB Index employs arithmetic averaging with monthly rebalancing.

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Monthly rebalancing helps maintain the stability and consistency of Index weightings.

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Importance

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?The CRB Index can be used as a leading indicator of inflation which causes commodities to increase in price. Therefore, an increase in the futures prices of a group of commodities indicates a potential increase in the general price level of an economy.

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?The CRB index is good indication of market sentiment because it is monitored and updated by market participants throughout the day.

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?The CRB Index can be used as an investment tool. Investors can invest in a commodity index such as the CRB index directly which would provide them exposure to a basket of commodities.

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?The CRB Index trades on theNewYork Board ofTrade at a contract size ofUSD500.

?Generally commodity prices move opposite to bond prices. This is because inflation causes commodities to increase in price while devaluating the price of bonds. This is one of the reasons that the CRB is so closely watched by both bond and commodity traders.

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