UK Accounting Glossary
A commodity is a product which is used as a basic source of production for any given industry. A commodity can be defined as any physical substance applied in commerce that is exchangeable with other commodities of similar type. The list of physical substances includes grains and metals. A modern interpretation of commodities includes financial products like indexes and foreign currencies. Commodities are usually traded in commodity exchanges like London Metal Exchange, Multi Commodity Exchange and Euronext liffe. Investors purchase and sell through futures contracts.
Price of any commodity is dependent upon supply and demand. It is believed that risk is the primary reason for the initiation of commodity trading. A farmer takes risk of producing a crop for market in future as he does not know the price of his crop in that time. Commodity markets help him to hedge against such uncertainties.
Generally speaking, any tangible good can be categorized as a commodity. A commodity is typically a bulk good such as gold, silver, natural gas, and oil. A commodity may also be a bulk food product like grain, oats, corn, beef, pork bellies, and coffee. Traditionally, a commodity was merely a good, subject to sale or barter. Today, however, a commodity can also represent an investment vehicle. One example is commodity futures. A commodity is traded at the commodities exchange. Commodities exchanges not only facilitates the commodity trade but also establishes and enforces rules and regulations pertaining to the commodity trading process. Depending on its use and trading purpose, a commodity may come in two types – cash commodity and spot commodity. A cash commodity is an actual commodity that is under a futures contract. A spot commodity, on the other hand, is one that is traded on a spot market, pending delivery.
Basis grade is the minimum commodity standard that is acceptable to meet the obligations of a futures contract. It is also known by the names ‘contract grade’ and ‘par grade’. This standard is essential for maintaining uniformity across a specific product. An example of basis grade is the predetermined ratio of components of sulfur and hydrogen in crude oil.
The delivery date is referred to as the date of maturity of a currency forward contract. Alternatively, a delivery date is defined as the final date by which underlying commodity for a futures contract must be delivered so that contract terms are fulfilled.
Commodity swap is a type of swap where the price of an underlying commodity affects exchanged cash flows. Commodity swaps are usually executed to hedge against commodity price fluctuations. In practice, the swap mechanism consists of a commodity user who would ensure a maximum price and then consent to pay this fixed price to a financial institution. Commodity user would take payments based on the specific commodity price in the market.
And Slade said: It really makes me sad that football club chairmen and boards seem to have lost that most precious commodity – patience. Sam’s sacking at Newcastle had, I suppose, been on the cards for a while, but it is really ridiculous to fire a manager after such a short time.
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This glossary post was last updated: 26th March, 2020