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Commodity Trading Today

Commodity Trading Today
June 06
21:17 2011

commodity trading

Commodity trading in today’s day and age plays an important role in the world economy and the economies of many nations. Commodity prices influence the development of many national and local economies that often depend on one particular commodity, for example crude oil.

The nations of the Middle East make up a good example of economies which depend on one commodity — crude oil — as their main source of wealth. The price of crude oil on the international market directly influences all major aspects of the economies of these countries.

Nevertheless, oil prices not only affect the nations of the Middle East, but also affect the economies of virtually every nation on earth. Many nations, which do not produce petroleum, are completely dependent on outside sources for their needs.

Petroleum makes up the base ingredient for many products including plastics and also affects the cost of transportation. When oil prices rise, so do transportation costs, which ultimately get passed on to consumers.

Furthermore, increasing oil prices fuel inflationary pressures on the world economy, prompting action by national central banks. These banks tend to raise interest rates when inflation begins to rise, making borrowing more difficult and slowing economic expansion.

Economies Dependent on One Commodity

Cuba makes up a good example of a nation dependent on a single commodity. Cuba has traditionally been one of the world’s leading producers of cane sugar, its main export commodity. Consequently, depending on the world demand for sugar, sugar prices will directly influence the amount of hard currency taken in by Cuba.

The foreign currency taken in from sugar sales is subsequently used for the importation of goods that the Cuban economy cannot do without, such as petroleum.

This means that if the price of sugar declines in the world market, the amount of hard currency derived from its sale diminishes, making it more difficult for Cuba to pay for the imports upon which the country depends.

How Commodities Influence Currencies

In addition to how the price of commodities influences a nation’s economy, the country’s currency may also be directly affected by the price of a commodity. The Australian Dollar is a prime example of this relationship.

Australia is a world gold producer; therefore, the price of gold often affects the exchange rate of the Australian Dollar. The price of gold recently made new all time highs; as a consequence, the Australian Dollar has also appreciated considerably against other currencies.

The above examples make up just a few of the ways that commodities trading today directly affect the world’s population. Many other examples can be cited illustrating how the price of commodities affects everyone.

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