The Rights of Account Holders
Elgar Financial Law series
Chapter 12: Summary of Part III
Commodity contracts, commodity accounts and commodity exchanges have become important risk management tools. They are integrated within the business and legal infrastructure of a number of economies that have recognized the value of commodity markets and their positive influence on economic development. However, the contribution of commodity markets to economic growth is frequently underestimated and occasionally even altogether ignored. Although commercial entities should benefit from the presence of commodity markets by having access to a mechanism that enables them to effectively manage their risks, critics often blame commodity markets for price increases and throw them into the same category as gambling and betting. This criticism is driven by the misunderstanding of the nature of risks involved in commercial activity. Stakeholders in developing countries should become familiar with the functions of organized commodity markets in order to assess whether their establishment would support economic growth. Understandably, this area of commercial activity and law is not as noticeable as securities markets and payment systems. However, just as companies utilize securities markets to raise capital by issuing shares and bonds, commodity markets provide similar opportunities to hedge against risks and reduce the cost of capital. Commercial risks inherent in commercial activities became valuable and highly liquid assets. These risks were packaged into commodity contracts and began to be traded on organized commodity markets. Organization of efficient commodity markets requires understanding of the rights conveyed by commodity contracts.
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