Beta

Beta compares a mutual fund’s volatility with that of a benchmark and is supposed to give some sense how far you can expect a fund to fall when the market takes a dive, or how high it might climb if the bull is running hard. It is calculated using regression analysis beta as the tendency of a security’s returns to respond to swings in the market.

A fund with a beta greater than 1 is considered more volatile than the market whereas less than 1 means less volatile then the market.

Imagine that your fund gets a beta of 1.15 — it has a history of fluctuating 15% more than the benchmark if the market is up, the fund will outperform by 15%. If the market heads lower or dips, the fund will fall by 15% more.

Alpha

Alpha is an advance instrument designed to take beta one-step further. It takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

Sharpe Ratio

It tries to quantify how a fund performs relative to the risk it takes.  For Example take a fund’s returns in excess of a guaranteed investment (a 90-day T-bill) and divide by the standard deviation of those returns. The greater the Sharpe ratio, the better a fund performed considering its riskiness.

R-Squared (R2)

It reveals what percentage of a fund’s movements can be related to movements in its benchmark index. An R-Squared of 100 would mean that all of the fund’s movements are perfectly explained by its benchmark. 

Standard Deviation

Standard deviation shed light on historical volatility. It is applied to the annual rate of return of an investment to measure the investment’s volatility.  It measures how far a fund’s recent numbers stray from its long-term average.  For example, if Fund A has a 10% average rate of return and a standard deviation of 5%, most of the time, its return will range from 5% to 15%.

Concluding, I would like to say that using the above mentioned tools one can provide some balance to the risk-return equation. If we use honestly the tools then we will better understand our investments, and perhaps will give us a truly full picture of our portfolio.           

Source: Investopedia.com

Mutual fund is a pool of money invested in accordance with the common objective stated before the investment to the investors. It provides the right opportunity to investors who lack ideas, expertise and/or time – to profit from the equity markets.  A variety of schemes are available to investors, including Debt-Oriented schemes, Equity Schemes, Balanced Schemes, Equity-Linked Savings Schemes, Money Market Schemes, Sector-Specific Fund, Index fund, etc. An investor in MF generally chooses the scheme as per his investment objective, risk profile, time horizon, etc. Here one can choose a fund depending how much risk he/ she is willing to take and when he/ she wants the money back. Ever since the equity markets have been enclosed by volatility, it is advised to invest through SIP route for the long-term investors.

In this article, we will discuss what is SIP and what are the benefits of SIP? SIP or systematic investment plan is a simple and time honored investment strategy for creation of wealth in a disciplined manner over long term period. It aims at a better future for investors by giving a good rate of return as compared to one time investor in volatile market by lowering the average purchase cost. It is evident from the recent slowdown that the Mutual fund invested trough SIP route has prevented the pitfalls of equity investment and is enjoying the high returns, if compared.  So it makes all the more sense today when the stock markets are volatile.

Below are some of the benefits of SIP.

Power of compounding:  If money is invested at an early age one can make money work with greater power of compounding with significant impact on wealth accumulation. The below table shows the impact of the power of compounding with different rates of return and at different time periods.

Rupee cost averaging:  It is not so easy to predict the movements of the market. Timing the market constantly is a difficult task for everyone. An automatic market timing mechanism that eliminates the need to time one’s investments is Rupee cost averaging. Here one does not have to bother about the ups and downs of the share prices or about the interest. Because investment of a regular sum is done at regular intervals with fewer units being bought ordinary stocks  and more units in Blue Chips stocks, which often gives good returns. Though SIP does not guarantee profit, but one can invest through it as it goes a long way in minimizing the effects of investing in volatile markets. 

Convenience: It is very easy and convenient to operate through SIP route as it could be done by simply providing post dated cheques with the completed enrolment form or give ECS instructions. The cheques can be deposited on the specified dates and the units credited into the investor’s account. The SIP facility is available in the Principal Income Fund, Monthly Income Plan, Child Benefit Fund, Balanced Fund, Index Fund, Growth Fund, Equity fund and Tax Savings Fund.

SIP features: If one would like to earn a good return from its principal then he should have a disciplinary approach. The disciplinary approach is a vital to earning good returns over a longer time frame.  Once invested through sip route, investors are saved from bothering to identifying the ideal entry and exit points from volatile markets.

Conclusion: Though SIP resolves a dilemma often facing investors due to ups and downs in the market price but investor finds it difficult to decide when to invest in the equity scheme. The success of investors SIP hinges on the performance of his/ her selected scheme. If the investor is able to make wise decisions and make the best of the Indian volatile market, SIP is definitely a powerful tool to create wealth over time.

In simple words, Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process, not a product.

Our life is full of uncertainty and no one knows what the future holds. Whether it will be healthy or weak? So we need to do financial planning to achieve our financial goals and to have financial security in dire circumstances. One can’t achieve his or her future goals, no matter how healthy he or she is, if he or she will not plan for these goals. So one should plan now to have a stable future ahead. It often requires consideration of self-constraints in postponing some enjoyment today for the sake of the future.

Financial planning should be carefully budgeted. When you do your investment planning, you must budget for both big and small spends. Financial planning needs to account for expenses like rent, utilities, and food per month. Once you’ve taken steps to control your debt and spending and worked out what you’re aiming for, you’re ready to start thinking about a plan to achieve your goals.

Following are the six steps, which are involved, in financial planning

Take control: We all need to plan for the future. So we have to control our finances and plan for our future. But it’s really hard to know just where to start. The key things, which generally affect our finances, are what we earn, what we owe, what we’re spending and how much we’re saving. Moreover, goal setting is an essential part of taking control of our finances. If we set the goals then we have the direction – how else are we going to know what to aim for? Once we start thinking about what we want to achieve, we’re going to find that we have a mixture of short-term and longer-term goals. Long-term goals are hard to get to grips with because they can seem so, well, long term. While Short-term goals are rather easier to visualise – maybe you want to buy a new car, save up for a deposit on a house, build up some savings for a rainy day or pay off a loan.

Know yourself: Well, before launching into any financial decisions, we should know ourselves and should understand how we really feel about risk. Risk is simply the possibility, which something negative will happen and this so called risk plays a big part in our thinking about financial planning. The rule-of-thumb with investing money is the higher the return, the higher the risk.

Save little and often: “Save little and often” is the secret of a successful financial planner. Short-term saving is about funding goals, which we hope to achieve in; it may be in next five years. Different investments suit different people at different stages in their lives. So one should make investment after considering one’s risk appetite and liquidity requirement after prioritizing future goals. Different instruments with different maturity are available in the market where one can invest such as deposit accounts (saving a/c, fixed deposit, recurring deposit), equity, debt, property, commodities etc.

Invest for the future: Investment should be made with long term prospects. Balancing your investments is vitally important. Don’t put all your eggs in one basket – spread savings across pensions, your home and investments such as shares and bonds. Make sure that the investments you make in the portfolio contain products from diversified financial instruments with different liquidity. So one should build diversified portfolio by making investment in different financial instruments with different maturity or liquidity to achieve the goals.

Protect yourself: Don’t get so carried away with sorting out your future that you forget what might be just around the corner. Always shop around for insurance. If you’re a homeowner, you’ll need buildings insurance. If you have a car then you should go for a motor insurance.

Get advice: The sixth and final step brings on the financial advisers and looks at how to make the relationship work for you.

Instruments for Investment

Deposit Accounts: Deposit accounts may not carry any of the risks involved in bonds or shares but these do not mean they are risk-free. Real return – the amount of interest earned above inflation can be a very small margin; even there is always danger that inflation may erode returns and reduce the purchasing power. It offers less growth potential than other investments. These investments are ideal for short-term needs.

Debt Instrument: Debt is a special type of loan and is less risky than shares but not as secure as deposit accounts. Bonds pay regular income in the form of interest that can be reinvested for further growth. Gilt funds are default free funds and these funds stick to high quality-low risk debt, mainly government securities. Gilt funds differ from bond funds because bond funds invest in corporate bonds, government securities and money market instruments.

Shares (Stocks) / Commodities: Shares/ Commodities involve more risk than bonds and deposit accounts. Investors get return from investment in the shares in the form of capital appreciation, if the share price goes up and receives dividend if the company shares it profits with the shareholders. Investment in shares/commodities can give better return than investment in deposit accounts and bonds but there may be setbacks along the way.

Real Estate / Property: A lot of money is tied up in one asset. Mortgage and maintenance costs can be high. This investment can give good returns if the house prices rise significantly.

Conclusion

Making frequent investments into your savings plan is an important part of your overall financial plan. A financial plan is a road map to help you to achieve your life’s financial goals. The reality is that a great salary with income to spare does not guarantee financial success, nor does a modest salary necessarily prevent financial success. Financial planning isn’t something that happens by itself. It requires focus and discipline. Financial planning proves to be highly useful in effective canalization of your money. Proper financial planning provides one with absolute financial freedom.

The main reason for selling is to meet loss in other countries they forced to sell position. Currently over 16 BN already pulled out by FIIS. It must be noted that selling is only in stock market but FDI section investing is still increasing.

3 Stage bail out plans success will decide future of not only stock market but also in physical or economy. Initially $250 Bn will be given to companies and banks. The idea was that banks would use the money to start making loans again. But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.

What made USA more interest on Nuclear Deal than INDIA?

As far as we are stock investors we are very happy about deal but as a citizen we are not. The deal is around _______. This is not main reason for interest its more than money, they have no strong alley near to China. More over it will help their next petroleum country, its countries luck that USA got into financial crisis otherwise they already started attacking petroleum country. Any way attacking plans are still on way but will take few years. Iran-Pakistan- India pipeline is the other reason. There was a high possibility of extending it to China also, means no doubt why they frightened if the whole 4 countries becomes alley. It would have given more strength to Iran, huge tax profit to Pakistan, if extended to China, huge tax profit to India also.

Since last time nuclear station blast years ago, Usa given less consideration to Nuclear based companies, now the deal will help these companies, so it is additional benefit to them.

Anyway the deals future will depend on new government, there is no guaranty that Dr. Manmohan Sing to rule again, even if congress wins.

We know 123, now 126

We all already know 123 rules, there is no doubt about rules as far as USA say or written in letter book, that deal will be depending 123 rules. We had already 123 rules 2 or 3 letters before, now 126 is new agreement that will be totally based on defense section. That is, will the now finally ready 123 Agreement for civilian nuclear cooperation between US and India give American fighters the required thrust to zoom ahead of other contenders in bagging the IAF project to acquire 126 multi-role combat aircraft (MRCA)? The US certainly thinks so, and is once again dangling the bait of spin-offs from its futuristic fifth-generation fighter (G-5) programmers if either F-16 ‘Falcons’ or F/A-18 ‘Super Hornets’ bag India’s gigantic Rs 42,000 crore ($10.4 billion) project for 126 MRCA. The MRCA project, after all, basically involves fourth-generation fighters in terms of avionics and weapons, with the contenders being the Russian MiG-35, Swedish JAS-39 Gripen, French Rafale, Eurofighter Typhoon and the American F/A-18 ‘Super Hornet’ and F-16 ‘Falcon’.

But the US is way behind Russia as far as attracting India to its G-5 fold is concerned, even though its programmed is far more advanced. “The F-35 presentation was only that of a preliminary nature. Still USA will force 126 as INDIA new friend.

Depending more on other countries is not good method. Its consequences will be very high.

Future of Market

USA crisis will impact indirectly to India. Still it is impact and will witness slow down. Currently market is over reacting, recovering 21000 is totally depends on global trend. We don’t mean Dow must come to 14000 but present volatility, new banks or company’s loss must not increase in coming months. If all settles we will confidence getting back, because it is natural money will be invested where growth is present. There is no doubt about India’s future then some benefit will be at stock market.

We believe that good companies can be bought at 21000 or 10,000 makes no difference if fundamentals strong. A well known company may not give you good return. Best example is realty companies, most of well known realty company’s current rates are 10 times or more low than their highs made few months back. It must be noted present well known companies are penny stocks in past, so try to identify companies.

Most of well know companies are still at lower levels based on fundamentals so such shares not to be sold at present level. It will start up trend again once sentiment gets back, or as you know as the growth is happening it will force share price to go up. Because as the dividend, bonus etc will give buying pressure. So donot get panic, be patient.

Besides providing a source of energy to power the aircraft, fuel is also used as a hydraulic fluid in engine control systems and a coolant for certain fuel system components. There is only one type of jet fuel, kerosene type, in civil use worldwide.

The performance of ATF is especially determined by the characteristic of its hygiene, combustion and its characteristic at low temperature. According to these specification, AVTUR (Aviation Turbine) complied the requirements needed such as has a freeze point maximum of -47°C and a flash point minimum of 38°C (100° F).

The price of ATF in India is based on International Import Parity prices. However, the ATF supplied by Indian oil companies is refined in India from imported crude. There is no direct import of ATF. The import duty on ATF is 20 per cent but the import duty on crude is only 10 per cent. Still, the oil companies charge a 20 per cent add-on to the Refinery Transfer Price (RTP). The refinery transfer price (RTP) is the price at which oil marketing companies (OMCs) lift products from the refineries.

For the first time in India, MCX has launched future trading in ATF in a response to increased demand for ATF due to the introduction of budget airlines and increased air-traffic in India. Airlines industry and oil refineries no longer have to face the problem of turbulent oil market Through ATF contracts customers can get an additional opportunity to trade with all the advantages of a domestic exchange.

Companies like BPCL, HPCL, IOC, Nacil, Go Air and Jet Airways have already evinced interest in hedging on the MCX platform. The companies willing to hedge on MCX crude will be exposed to the same volatility as NYMEX WTI crude as the price correlation between these two has ranged from 0.97 to 0.99 over the past three years since the launch of crude contracts on the MCX platform.

Aviation Companies get benefit from hedging on MCX. Suppose crude price weakens, the loss in the futures market the company will get compensated by getting a benefit in the spot market, as they will buy ATF at a lesser rate. As per the recent guidelines of the ICAI any profit/loss on account of hedging transactions in relation to the company’s business can be setoff against normal business profit/loss.

A change in the ATF pricing scenario can come about from a combination of several factors – such as a reduction on the duties of imported ATF, reduction in base price by the oil marketing companies, rationalization of tax structure, allowing trading ATF as a commodity on MCX, hedging of ATF and allowing the market forces to play their role as well.

ATF Pricing Structure

Drivers and Restraints of Aviation Fuels Market

ATF trade exchange
Tokyo Commodity Exchange (TOCOM)
Central Japan Commodity Exchange (C-Com)
New York Mercantile Exchange (NYMEX)
Multi Commodity Exchange (MCX)

We are living in the world of uncertainty. Time is precious; it never stops for any one and the same story goes continuous for all the people living on this earth. So the question arises here is that who will take your place or who will earn or from where will you make money and many more questions if something………… Unfortunate, decease is more expensive than most people believe, involving more than a few costs that many neglect to take into business relationship.

Yes, something is there but to some extend only who stands nearby to you and your family providing little hope. Yes, you have murmured the right word, “Insurance”. When determining if you need life insurance, it’s best to see your financial obligations. The enquiry isn’t, do I need life insurance? The real enquiry you should be asking is, would my loved will be able to earn all the expenses?

A thriving insurance sector is of vital importance to every modern economy because it encourages the habit of saving and provides a safety net individual. It is essential to plan for the future. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds.

People normally consider insurance as a scheme when and where you have to lose a lot to gain a little without knowing that it is the most reliable tool, which every individual can use to plan for his future.

Basically, life insurance is nothing but a contract where the insured party or the purchaser of insurance pays a premium that protects him against specific losses. While planning your life insurance portfolio, you must consider your family’s recurring needs like medical expenses, house rent, provision costs for instance as well as long-term needs that involve reinstating your family’s set standard of living and their future such as higher education and marriages.

Hence, insurance is essentially the means to financially compensate for losses that life throws at people – corporate and otherwise. Though an insurance cover can’t protect you against the emotional losses arising out of these risks, it softens the economic crisis that usually accompanies these losses. By choosing the right policy as per your needs i.e. customised solutions, you will be able to plan for a secure future for yourself and your loved ones because to identify the right plan basis your needs is the first crucial step towards insurance planning. But point to remember is that before buying life insurance, you need to do a little thinking and a lot of research. Once you have analysed your needs as per above classification, you need to then ascertain important factors such as type of cover, insurance amount as per one’s income, life stage, and dependents.

A young and healthy person with no bad habits, life insurance is affordable. Life insurance may be quite expensive or impossible for who is older, someone with a life treating illness, or someone with habits that could cause a health condition. Only you can decide if you can afford the premiums for a life insurance policy and whether the cost is justified.

The need for life insurance changes with the stages of life, starting with no need when you’re young, progressing to greater and greater levels as you take on more and more responsibility and finally beginning to diminish as you grow older, which is when you should commence planning for your retirement.

When you finally decide that you do need to purchase life insurance, proceed with caution. Be sure that you have understood exactly what you are purchasing, how it works, how it pays, and so on. There are many types of life insurance and what works for one person might not be right for another. So the first thing to do is that you should discuss your decisions with your family and ask the insurance agent to explain detail of the plan including time and tenure, policy premium term, sum assured, risk coverage, loan facility, tax redemption, benefits etc. These should be discussed properly and thoroughly so that no confusion creates later on. The main important thing is that you should choose only those policies, which are easily acceptable to you.

Previously people thought that insurance is only for saving purpose or which is getting only after the death or when the tenure is over or to save tax. As they were unaware of the mediclaim, educational plan, retired pension plan, and various benefits of it, they used to ignore.
But with the passage of time, opening up of insurance to private sector including foreign participation has resulted into various opportunities and challenges to the people. One shouldn’t forget that a well-developed and evolved insurance sector is needed for economic development. It is also fact that until the entry of private insurance companies like Reliance and Birla, the Life Insurance market in India was an underdeveloped market that was only tapped by the state owned LIC. The state owned LIC sold insurance as a tax instrument, not as a product giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the private insurers the rules of the game have changed.

All private insurers are forwarding the second phase of further plans as they have sustained the achievement quicker than their expectations. No doubt the aggressive attitude of private insurers is already paying rich dividends. But a rejuvenated LIC is staying nonchalantly these days even it is also trying to fight back to encourage new customers side by side.

Moreover now a day LIC is betting on its newly launched health insurance plan to achieve its growth target. The policy has benefits, which includes hospital cash benefit, major surgical benefit, and domiciliary benefit.

Conclusion: Life is a roller coaster ride and is full of twists and turns. It is a combination of sunshine and rain. We cannot take anything for granted. Here, Life insurance plays an important role in financial planning for many families. Insurance policies are a safeguard against the uncertainties of life. Life insurance, simply put, is the cover for the risks that we run during our lives. It protects us from the unforeseen events that could affect us. Thus, having a life insurance policy is very vital. Its cost varies based on age health habits and the amount of insurance. It is the only financial services product, which guarantees that a specific sum of money will be available at exactly when needed. During a financial emergency, policy loans may be taken and the full policy values may later be restored. Moreover the introduction of new products in response to changing economic conditions and consumer’s preferences is expected to continue in the future and vast range of people will be benefited.

Types of Crude Oil
Crude oils vary widely in appearance and viscosity from field to field. They range in colour, odour, and in the properties they contain. 

Brent Crude is one of the major classifications of oil consisting of Brent Crude, Brent Sweet Light Crude, Oseberg and Forties. It is sourced from the North Sea. It contains approximately 0.37% of sulphur. The symbol for Brent crude is SC. One contract equals 1,000 barrels (160 m³). Contracts are quoted in U.S. dollars, therefore each tick lost or gained equals $10.

Sweet crude oil is a type of petroleum. Petroleum is considered “sweet” if it contains less than 0.5% sulfur. Light sweet crude oil” is the most sought-after version of crude oil as it contains a disproportionately large amount of these fractions that are used to process gasoline, kerosene, and high-quality diesel.

West Texas Intermediate (WTI), also known as Texas Light Sweet, is a type of crude oil used as a benchmark in oil pricing and the underlying commodity of New York Mercantile Exchange’s oil futures contracts. Its API gravity is 39.6 degrees. WTI is generally priced at about a $5 to $6 per-barrel premium to the OPEC Basket price and about $1 to $2 per-barrel premium to Brent, although on a daily basis the pricing relationships between these can vary greatly.

Relationship between Crude Oil and Dollar

Crude Oil and the Dollar are two of the most closely watched variables in the financial world, and they’re increasingly heading in opposite directions. But which one is impacting the other is a matter of growing debate.

The much larger structural story of the oil price rise is demand from emerging markets such as China in recent months has resulted in Dollar depreciation which in turn pushed up crude to all-time highs. Moreover America is addicted to Oil. With 5% of the world’s population, the United States consumes 25% of all global Oil production. No nation is so dependent on Oil like the USA. If the Consumption increases then it is sure for Oil price to hike.

In the present Commodity market scenario one cannot stop thinking that there is a direct or inverse relation between the two. Though Oil is produced in dozens of countries around the world, but its standard trading unit is in dollars per barrel. So, people who want to buy more oil would need to pay more dollars, thereby bidding up both.   But the important point to remember is that Dollar devaluation affects oil prices directly in the short run and indirectly in the long run but in both cases the oil price hikes.

As foreigners bid up the price of oil and other dollar-denominated commodities, the price of crude oil and other commodities rise in dollar terms as the dollar falls in value against other currencies.

Furthermore, Dollar depreciation reduces the ability of the Oil producing countries and the Oil companies to invest in additional capacity, which result in cut in supply and increases domestic inflation and in return it lower the amount of funds available for investment in the Oil sector.

Lower interest rates usually weigh on a country’s currency, because they erode the return on assets denominated in the currency. The dollar is in a continuous cycle of decline as it lost a quarter of its value against the Euro over the past two years. On Sept. 18, the central bank cut its federal funds rate by half a percentage point, and then followed it up with a quarter-point cut at the end of last month, bringing the benchmark to 4.5%. Since then, the dollar has plunged while Oil prices soared.
Lastly, decline in US Motor Gasoline inventories ahead of summer driving season with falling refinery utilization rate is also supporting the historic high of Crude Oil. However, the rally is mostly influenced by depreciation of USD, which makes dollar denominated assets cheaper for importing countries. This resulted into increased buying in Crude; also fueling the rally is the investment demand flowing across the commodities segment.

These opposite trends are the result of attempts by investors and speculators to escape the effects of inflation and the declining dollar by resorting to oil and gold. By doing so and pumping billions of dollars out of the stock market, they are effectively weakening these markets while at the same time pushing the prices of oil, gold and commodities upwards at a rate that far exceeds the equilibrium between the demand and supply of these commodities.

The difference between the two grades is in the Crude’s Sulphur content. Sweet grade has less than 0.5% sulphur in them, whereas sour Crude has a higher level. Sour Crude oil contains the impurities hydrogen sulfide (H2S) and carbon dioxide, or mercaptans. Countries like Venezuela, Saudi Arabia, Iraq, Kuwait, Iran, Colombia and Mexico are major producers of sour Crude oil. The countries from which India imports Crude oil are Venezuela, Nigeria, Sudan, Iran and Kuwait.

As there is a scarcity of sweet grade of Crude and is more expensive, the basis between sour and sweet Crude has fluctuated wildly.
Sweet grade of Crude has therefore become less and less useful in helping to establish the “correct” pricing for sour grade. This is the main reason why the Nymex has worked for the last three years to establish the Dubai Mercantile Exchange, or DME and Intercontinental Exchange or ICE jumped into the battle of creating an open market for price discovery of a sour Crude grade

At the heart of the debate on Crude oil pricing lies a paradox: as sour Crude grow in importance, the debate about pricing benchmarks has continued to focus on light sweet Crude such as Brent and WTI, which have been the markers for the last 22 years.

But as the world becomes critically reliant on heavier and higher-Sulphur streams, the emphasis needs to be increasingly on sour Crude since this grade is assuming more importance in the price discovery process. Producers and consumers face not only extreme volatility in the price of oil but also in the relationship between light sweet and heavy sour streams as the incremental heavy barrel behaves in line with its own fundamentals.

Government of India which decides the price as well as the excise duty and tax prefers to buy high percentage of sulphur contain Crude oil as the country has the innovative refining technologies. So the cost of petroleum product in India is less as compared to the global market along with the government policies. But the point to remember is that fluctuation of any Crude price globally impacts Indian oil price too. Weighted average price of both types (Oman-Dubai sour grade Crude and Brent dated sweet Crude) of oil means the price of India’s Crude basket.

Major Price influencing Factors for Crude

v OPEC output, supply and spare capacities.
v Currency Fluctuation.
v US Crude Products Inventories Data (Weekly).
v Increased demand from developing countries and geopolitics.
v Weather condition like storms, hurricane etc.
v Speculation buying and selling
v Economic factors like rapid growth of certain Asian countries.
v Other factors like terrorist attacks sudden outages etc.

Looking at the above factors, it is clear that world Crude price is not the only constituent in the Indian petrol price. Despite demand and supply there are several other factors too that affect Crude prices. Then there are other non-financial reasons too that impact Crude prices.

Exchanges dealing in Crude futures

v The New York Mercantile Exchange (NYMEX).
v Dubai Gold& Commodity Exchange (DGCX)
v The International Petroleum Exchange of London (IPE).
v The Tokyo Commodity Exchange (TOCOM).
v Multi Commodity Exchange of India (MCX)
v National Commodity and Derivatives Exchange Ltd. (NCDEX)

Types Of Crude Oil

Crude oils vary widely in appearance and viscosity from field to field. While all Crude oils are essentially hydrocarbons, the differences in properties, especially the variations in molecular structure, mean that a Crude is more or less easy to produce, pipeline, and refine.
Crude oils vary in price as they vary in quality. Other factors—the makeup of the oil or its market penetration—can also influence price. West Texas Intermediate and Brent Blend are two Crude oils that are either traded themselves or whose prices affect other types of Crude oil. Even Imported Refiner Acquisition Cost (IRAC), OPEC Basket, and the NYMEX futures have also some role to play while deciding the crude prices.
o It is classified as ‘sweet’ and ‘sour’, depending upon its sulphur content.
o Sweet Crude has less than 0.5 per cent sulphur content whereas sour Crude has more than 0.5 per cent. Sour Crude oils are cheaper than the sweeter variety.
o Sour is more complex and expensive to refine.
o Together the two main characteristics, the API (American Petroleum Institute) gravity and the sulfur content, are significant factors in explaining the price level and trade pattern of a particular Crude oil.
o The higher the API gravity the lighter the compound.

Some of the well-known varieties of Crude oils are as below:

West Texas Intermediate (WTI) refers to a high-quality light Crude oil that is refined in the United States. It is light and sweet thus making it ideal for producing products like low-sulfur gasoline and low-sulfur diesel. This is the benchmark used by the International Energy Agency and commonly in the Western Hemisphere. Its API gravity is 39.6 degrees and it contains only about 0.24 percent of sulphur. WTI is generally priced at about a $2-4 per-barrel premium to OPEC basket price.

Brent Crude oil refers to a light sweet Crude oil from North Sea. It has API gravity between 38-39 and has higher sulphur content than WTI Crude oil.
Brent Crude oil stands as a benchmark for Europe and in other parts of the world. Brent prices are typically $1–$2 less than WTI prices. It is more expensive than the Organization of Petroleum Exporting Countries (OPEC) basket.

Nigerian Bonny Light (sweet), a substitute of WTI, is a high grade of Nigerian Crude oil with high API gravity (low specific gravity), produced in the Niger Delta basin and named after the prolific region around the city of Bonny. The very low sulfur content of Bonny Light Crude makes it a highly desired grade for its low corrosiveness to refinery infrastructure and the lower environmental impact of its byproducts in refinery effluent.

Dubai Crude refers to a light sour Crude oil extracted from Dubai. It is used as a price benchmark or oil marker because it is one of only a few Persian Gulf Crude’s available immediately. It is generally used for pricing Persian Gulf Crude oil exports to Asia. The Dubai benchmark is also known as Fateh is used in the United Arab Emirates. Dubai Crude has a gravity of 31° API (specific gravity of 0.871) and sulfur content of 2%wt.

Suez Blend (sour) refers to a light sour Crude Oil extracted from Suez cannel. It has a gravity of 32 medium and sulfur content of 1.5 percent

Urals (CIS) (sour) refers to a light sour Crude Oil extracted from Russia. It has a gravity of 31-33 percent of API and sulfur content of 0.8-1.8.Its primary loading ports is Primorsk, Novorossiysk and Odessa.

Conclusion: The bottom line about all of this is that the most-commonly quoted type of Crude oil is light, sweet Crude. This is also one of the most-expensive, highest-quality types of Crude oil on the planet. The traditional benchmarks Brent and WTI are confirmed to be global price setters.

Exchanges dealing in Crude futures

v The New York Mercantile Exchange (NYMEX).
v Dubai Gold& Commodity Exchange (DGCX)
v The International Petroleum Exchange of London (IPE).
v The Tokyo Commodity Exchange (TOCOM).
v Multi Commodity Exchange of India (MCX)
v National Commodity and Derivatives Exchange Ltd. (NCDEX)

Crude Oil Units (average gravity)
v 1 US barrel = 42 US gallons.
v 1 US barrel = 158.98 liters.
v 1 tonnes = 7.33 barrels.
v 1 short ton = 6.65 barrels.
Note: barrels per tonnes vary from origin to origin.

Let us have a concise look on above mention commodity Currencies

Canadian Dollar: Canadian Dollar is normally abbreviated with the Dollar sign $, or C$ to distinguish it from other Dollar-denominated Currencies. It is divided into 100 cents.

Australian Dollar: Australian Dollar is the currency of the Commonwealth of Australia. It is abbreviated with the Dollar sign $. A$ or AU$ is often used informally to distinguish it from other Dollar-denominated Currencies. It is subdivided into 100 cents.

New Zealand Dollar: New Zealand Dollar is normally abbreviated with the Dollar sign $, or alternatively NZ$ inorder to distinguish it from other Dollar-denominated Currencies. It is divided into 100 cents. It is one of the 16 most traded Currencies in the world.

The South African Rand: The South African Rand is the currency of South Africa. The rand has the symbol “R” and is subdivided into 100 cents, symbol “c”.

Can Currency Moves Predict Commodity Prices?

Currencies have remarkably robust power in predicting future global commodity prices. Commodities represent a significant portion of exports from these Currencies’ countries, so when prices move it can have an outsized effect on their economic wellbeing. Rising commodity prices benefit their economies, making their Currencies more attractive; falling commodity prices do the opposite. But the economists found that the Currencies, rather than merely responding to commodity price movements, anticipate them. This may be because Currencies are forward-looking, with their values depending on economic expectations. On the contrary commodity prices are more dependent on changes in current conditions.

Let’s have a look at the major commodity Currencies and see how much their movement correlates to certain commodities…

Canadian Dollar And Oil
Crude Oil, popularly known, as “Black Gold” is the lifeblood of the industrialized world is the highly watched traded commodity. Countries that produce Oil hold massive reserves of Oil tend to benefit from rise in its prices, including Canada.
Canada is one of the world’s largest producers of Oil after Saudi Arabia and holds Oil reserves, which makes Canada very reliant on its most prized commodity. Moreover, it is also the largest supplier to the world’s biggest Oil consumer – the United States. Because Oil is such a big part of the US economy, rising Oil prices tend to have a negative affect on Dollar. Therefore, knowing what type of movement to expect in the Canadian Dollar if Oil prices drop, for example, will definitely help us to make smarter decisions.

Australian Dollar and Gold

Trading in the Australian Dollar is just like trading Gold. Luckily, Australia is one of the world’s largest producers of Gold and its exports comprise over 50% of commodities, including other precious metals.
The price movement of Gold as well as other markets has the large impact on this commodity currency, which influence the direction of the Australian Dollar.

Short-term moves in commodities usually do not directly affect a commodity currency immediately. Analyzing commodities for use with Currencies is probably best suited for longer-term outlooks, trading, and investing.

Commodity Prices And Currency Movements

Movement prediction of Currencies in the markets is the key to make money in trading – but putting this simple concept into action is much harder than it sounds. The fact is that Currencies are moved by many factors say supply and demand, politics, interest rates, economic growth, and so on. More specifically, since economic growth and exports are directly related to a country’s domestic industry, it is natural for some Currencies to be heavily correlated with commodity prices.

In the month of May 2008, Oil and Gold set record highs and were two of the biggest drivers of currency movements. In fact, USD Dollar reacted very differently across various Currencies simply because of that particular currency’s correlation with commodity prices as well as the slow down of the economy.

Conclusion
If any investor want to trade commodity Currencies than the best way to use commodity prices in trading is to always keep an eagle eye on the related commodities and the other eye on the currency market, watching how quickly it responds. Due to the slightly delayed impact of these movements on the currency market, there is generally an opportunity to overlay a broader movement that is happening in the commodity market to that of the currency market. Bottom line, it never hurts to be more informed about commodity prices and how they drive currency movements.

In the current run up in the price of Gold, it is time to re-evaluate how Gold really relates to Dollar.

The reason that Gold and Dollar generally trend in opposite directions is that in one respect Gold is just another Currency. One has to pay more Dollars to buy Gold so the Gold price dominates Dollar. Conversely, when the Dollar’s exchange value rises, due to a bear-market rally or any reason, it takes fewer Dollars to buy Gold so Gold price falls. A short-term countertrend Dollar rally leads a short-term bearish trend for the price of Gold denominated in US Dollars.

The US Dollar was considered as the safe haven; but it was a story of long long ago. But at present many investors/central banks continue to hold Gold as their safe haven asset to protect themselves from worldwide economic shocks or tensions. The USD diversification is set to continue with the US having such a large foreign debt and weakening economic conditions. Gold is considered as safe heaven so Gold is used as a hedge against inflation, the ultimate “insurance policy” against geopolitical risk and protection during periods of turmoil in the financial markets. Due to the inverse relationship between Gold and with the outlook of Dollar looks dim bullish momentum in Gold is expected.

Gold is generally quoted in US Dollars per ounce of Gold; so any fluctuations in the strength of the Dollar are likely to be reflected in Dollar price of Gold: when the Dollar falls the Gold price rises… and when Dollar rises Gold falls. The relationship is not exactly inverse, however, and there are times when both Gold and Dollar rise or fall simultaneously

Countries like China, Russia, Japan hold vast amounts of reserves in foreign currencies and the USD is just one of the many they hold. It is estimated that countries (excluding the US) hold around $13 trillion in US currency. The major problem here is that if the US economy continues to show weakness and the USD continues to fall, then many nations who hold USD as foreign currency reserves might sell it and replace it with another nations currency, or even Gold.

Investors who are looking at buying Gold (like central banks) may have to sell their US Dollars to make this transaction. This ultimately drives the US Dollar lower as global investors seek to diversify out of the Dollar.

Weakening Dollar makes Gold cheaper for investors who hold other currencies. This results in greater demand from investors who hold currencies that have appreciated relative to the US Dollar. (If there is a fear of interest rate cut in any currency generally it depreciates the value of the currency. In that case investors prefer to invest in Gold as compared to Dollar. )

Conclusion:
There is endless discussion regarding officially re-linking Dollar to Gold in some manner, but in fact, Gold is de facto tied to Dollar, and has been since the birth of the nation. Each time that Gold is purchased, the price is different, and reflects the current perceived change in the relationship between Gold and Dollar. These two have always had an inversed relationship with each other, if one is up, the other is down. But in 2005, Dollar rallied while Gold remained firm; at times both were rallying together. So though there is inverse relation between the two one cannot say that it always happens. Gold is also considered as ideal currency is one whose value is stable and they hold that Gold is historically the most stable form of money. They believe an unstable currency such as “fiat money,” the value of which is determined by governments, is all too vulnerable to manipulation by corrupt politicians and increases the risk of inflation and deflation.

Following are the charts of US Dollar index and Gold. And it is evident that both have inverse correlation.