In general sense, a commodity is a physical good whose value is derived from the values of various inputs used at different stages of its production.
In business sense, a commodity can be defined as a tangible as well as a movable good used for trading or exchanging or for buying and selling. Primarily, it is a homogenous product that has value at the time of sale and not at the time of use. Any product that can be used for commerce or an article of commerce, and is traded on an authorized commodity exchange, can be defined as a commodity. Forward Contracts Regulation Act (FCRA), 1952 states that goods are "every kind of movable property other than actionable claims, money and securities".
Risk is the probability or likelihood of the occurrence of an unexpected event. It is the deviation between estimates and actuals. If the occurrence of an event is forecasted with certainty, there is no risk at all. In other words, if an event actually takes place as expected, there is no risk. Risk can be either positive or negative. Positive risk is acceptable and desirable. For example, we expect the price of rice per kg for the next month to be Rs. 16. In the next month, the price can be either Rs. 14 or Rs. 18 or even Rs. 16. If it is Rs. 14, it is a positive risk for the buyer and a negative risk for the seller. If it is Rs. 18, there is a negative risk for the buyer and positive risk for the seller. If it is Rs. 16, there is no risk, as it is the same as expected. |
