ARE 138. Discussion Section. Price Risk.pdf

ARE 138. Discussion Section. Price Risk.pdf - International...

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International Commodity Markets: Price risks and mitigation strategies, a policy perspective Armando Rangel Colina March 2018
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Motivation 1 ST part of the course: theoretical framework for market creation and operation. What is a market What is a benchmark Seven principles for the creation of a terminal market 2 nd part of the course: trade theory and specifics of different commodity markets. Benefits of trade Quality, location, production cycle, etc. Institutional arrangements
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Objectives of this discussion section: Understand the importance of markets Identify some risks that may arise from said markets Identify some mechanisms to counter price risk
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Why are markets important? Building block of a market economy (as opposed to a planned economy) Willing buyers, willing sellers, allow for the efficient setting of prices Prices allow efficient resource allocation
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What are the risks? Markets are complex (web of prices + institutional arrangements + shocks) = price volatility
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1,355.62 1,317.91 2.8% March 2 nd 2018
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1,317.91 1,254.5 8.06% Jan 2 nd 2018 March 2 nd 2018
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What are the risks? Think of a hypothetical Davis Farmer’s market: Day 1 Day 2 Day 3 Price of Orange Juice 5 5 5 Price of Oranges 2 1.5 4 Margin 3 3.5 1 Davis FM: Hypothetical prices
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What are the risks?
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