MCCP: MCX Certified Commodity Professional Interview Questions

The MCX Certified Commodity Professional (MCCP) certification helps gain a solid understanding of the dynamics of commodity markets and to manage risk wisely. You must have a high level of knowledge and performance in support of the various demands of market players to pass the interview. You must have a firm grasp of the fundamentals and be able to trade commodities and manage price risk. Furthermore, you must have a thorough grasp of commodities market dynamics, how to trade in commodity markets, and price risk management strategy and operations.

The MCCP is no ordinary commodity career. Now is your time to open the doors to a world of opportunity. So below is a comprehensive list of the top questions for the MCCP interview, to give you a head start. Let’s begin!

1. Which market type is a commodity market?

In general, there are two types of markets that trade in commodities: spot markets and derivatives markets. Spot markets involve the exchange of physical commodities for immediate delivery, while derivatives markets involve the exchange of futures, forwards, and options.

2. What do you know about the commodity derivatives market?

Commodity derivatives are a means to profit from the price movements of commodities without having to buy or sell them. The investor purchases the right to exchange a certain commodity for a certain price at some future date.  He may be buying or selling that commodity.

3. Can you name the types of commodity derivatives?

Futures and forwards are two forms of commodities derivatives that both use the spot market as their underlying asset and provide the owner control of that asset at a time in the future for a price agreed upon now.

4. How would you differentiate between commodity and derivatives?

Commodities are goods used as inputs in the manufacturing of other goods or services. Examples include wheat, corn, gold, and oil. Commodity derivatives are exchange-traded contracts based on commodity prices.

5. What makes equity and commodity market differ?

Commodities are basic and undifferentiated products, generally traded on commodity futures exchanges. Equities represent ownership in a firm or listed entity that has issued stock.

6. Can you define a regulatory framework?

Regulatory frameworks are essentially a set of legal standards that might be required and coercive (national laws and regulations, contractual duties) or voluntary (international agreements) (integrity pacts, codes of conduct, arms control agreements)

7. Why is the regulation of derivatives like commodity futures necessary?

Derivatives are regulated because derivatives can be used for hedging or speculating, and speculation on the market is linked with a variety of economic problems. These include the excessive systemic risk when the derivatives speculators go bust.

8. Who is responsible for the regulation of the commodity derivatives market in India?

Since September 28, 2015, the Commodity derivatives market in India has been regulated by the Securities and Exchange Board of India. Before September 28, 2015, it was regulated by the Forward Markets Commission (FMC).

9. Can you name the key participants in the commodity derivatives market?

The important participants in the commodity futures market are:

• Firstly, the Commodity market speculators
• Then, Directional Margin Traders
• Spot / Futures Arbitrageurs
• Finally, Commodity price hedgers

10. How would you describe the meaning of derivative market risk?

Market risk often refers to the risks associated with investing in derivative products, credit products, and cash management instruments, which are affected by a number of factors, including interest rates and market conditions.

11. How is risk management done through derivatives?

Derivatives can reduce the risk of bad harvests, interest-rate fluctuations, and other negative events. They are based on the price, volatility, and riskiness of an underlying stock, bond, commodity, interest rate, or currency exchange rate.

12. Can you elaborate on the role of financial derivatives in the management of financial risk?

Financial derivatives are a great tool for businesses to control their risks. Corporations utilise this to protect themselves against asset composition fluctuations. As a result, financial derivatives allow businesses to reduce risk while increasing their rate of return.

13. What do you know about hedging in the derivatives market?

Hedging is the practice of using financial instruments to minimize risk. In the derivatives market, the most common hedging strategy is to offset an existing position by taking out an offsetting position in a derivative that usually has a positive correlation with the original position. This can be accomplished by finding a derivative with the same maturity date and evaluating its price relative to that of the underlying security. While other types of hedges can be constructed via other means like diversification.

14. Can you name the techniques involved in hedging?

The main hedging techniques include:

• Firstly, Futures hedge
• Then, Forward hedge
• Money market hedge
• Finally, Currency option hedge

15. What are some of the important hedging benefits of derivatives?

The advantages of Derivatives are as follows:

• Firstly, Hedging risk exposure
• Then, Underlying asset price determination
• Market efficiency
• Finally, Access to unavailable assets or markets

16. Can you recommend a hedging strategy?

For long-term investments, low-strike price put options can provide the best hedging value. They are initially expensive, but they cost a lot less per market day—so they are incredibly useful for long-term investments.

17. In what way does arbitrage in commodity work?

Arbitrage is the practice of buying or selling an asset in one marketplace while simultaneously selling or purchasing the same asset in another market at a higher price. Arbitrage exists in most asset classes and has historically offered one way to enrich yourself in a lawful manner.

18. How would you describe a spread in commodity trading?

The commodity-product spread is the difference between the price of a raw material commodity and the price of a completed product manufactured from that commodity. Long bets in raw materials and short positions in linked final goods are available to investors who desire exposure to this spread.

19. Can you elaborate on the working of arbitrage and hedging strategy in the international market?

Hedging and arbitrage are two similar-sounding financial practices. Both involve more than one bet; the difference is that hedging involves placing bets from multiple sides in an attempt to limit the risk of serious loss, while arbitrage involves buying something at a low price and then selling it elsewhere at a higher price.

20. What are the 3 types of arbitrage?

There are several different types of arbitrage, each with a different focus and approach, including pure arbitrage, merger arbitrage, and convertible arbitrage.

21. How would you describe the use of futures in derivatives?

Futures are contracts, agreed upon by two parties in advance, that commit the two parties to trade an asset of equal value at a specified future date. Futures contracts obligate people to trade assets at an agreed-upon price in the future. That price is set now, and no matter what the current market price is, those who sign the contract commit to trading for that price or face a penalty.

22. Explain what is clearing and settlement in the commodity market?

Clearing and settlements is a method through which an exchange ensures that your deals are settled. Because anonymous trade transactions can occur between Buyers and Sellers, the exchange bears the counterparty risk in the case of failure to satisfy settlement commitments.

23. What are the available types of settlement for a derivatives contract?

Multi Commodity Exchange provides three types of settlements. They are compulsory, cash, and both, where the compulsory settlement means that all contracts kept open till expiry must be settled physically.

24. How would you explain the meaning of the term trader workstation?

The trading workstation is the terminal used by a member to access the trading system. Through the workstation, a member is able to place orders and view account information. A member can arrange for additional employee IDs through the workstation in order to provide more than one employee access to the system.

25. What do you know about taxation and accounting?

Tax accounting is the part of accounting that deals with taxes. Individuals, businesses, corporations, and other entities can use tax accounting. An individual would basically understand that, income tax accounting is based on income, qualifying deductions, donations, and any investment gains or losses.

26. Could you elaborate on the role of warehouse operator in the commodities market?

Warehouses play a very crucial role in commodity futures trading. Simply speaking, by storing the actual commodity, warehouses connect farmers with the futures market and provide credit financing. By using this facility, the farmer can hold a commodity to future profit and earn money for giving up inputs and day-to-day expenditures.

27. What is a commodity warehouse in simple terms?

Commodity warehouses are facilities approved by a trading facility to serve as regular delivery points for a particular commodity.

28. What are the commodities available in MCX?

Following are the commodities available in MCX –

• Products
• Black Pepper.
• Crude Palm Oil.
• Cotton.
• Kapas.
• Cardamom.
• Mentha Oil.
• Rubber.

29. Can you explain how do MCX commodities work?

The MCX trading platform offers secure, transparent trade mechanisms and operates. The MCX trading platform offers secure, transparent trade mechanisms and operates within the regulatory framework. In a futures transaction, a trader buys a set of goods at a predetermined price, at a predetermined date. A good example would be, buying wheat before the harvest has happened for the year.

30. Which commodity would you suggest as the best to trade in 2022?

The best 5 Commodities to Trade in India in 2022 are –

• Crude Oil.
• Aluminum
• Copper
• Natural Gas
• Gold.