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Quality of Assets and Functions
Changes in the quality are not an issue in the matters of financial derivatives as there is no physical attribute to weigh. In commodities, the physical features and quality of the goods are of utmost importance. When the asset is specified, it is imperative that the Exchange stipulate the grade (or grades) of the commodity that are acceptable. Commodity derivatives are strict on the standards of quality assurance/certification procedures. Trading in commodity derivatives also requires quality assurance and certifications from specialized agencies.
The Bureau of Indian Standards (BIS) and AGMARK regulates the standards processed agricultural commodities in India.
NCDEX specifies ‘accredited warehouses’ where deliveries of a commodities are delivered, stored and picked up. For the services, warehouses charge a fee for storage, insurance, assaying and handling charges, and/or incidental charges.
Functions of a warehouse
– Assign independent storage spaces as instructed by the Exchange for the commodities. The warehouse must meet the requirements set by the Exchange in order to store the commodities.
– Supervise and maintain the grading of the commodities undertaken by the warehouse before storage takes place.
– Take care that the commodities are stored according to their grade specifications, validity period and facilitate maintenance of identity. If the validity expires on a commodity, it must be separated and stored at another location to avoid being mixed with the valid commodities.
