Commodity paper is defined as the loan or advance of issued by the borrower to the lender on part of which the raw materials owned by the borrower serve as the collateral body for both the people.
Attributes of commodity paper
There are many attributes of the commodity paper. These include the bills of lading. Usually the bills are offered in the cases when the commodities are in transit. On the o0ther hand when the commodities are in storage, then the inventory lists are prepared or the warehouse receipts are prepared. There are various categories which include the formulation of commodity paper. According to the conditions of commodity paper, the lender does not take the hold of commodities and does not own their possession. This possession cannot be authenticated unless the loan is made default by the borrower.
Goods against which the commodity paper is issued
Usually the commodity paper is issued against the raw materials which include oil, grain, gold, coffee, copper, cotton, lumber, wheat, sugar, natural gas and other consumable goods. These commodities are very effective raw materials and can act as good investment. There are various tools made available for the investments in these commodities. Normally investors are offered with the techniques ad tools as options, stocks, ETF, ETN and other such facilities.
Explanation of commodity paper in terms of Economics
Commodity paper is defined very clearly in Economics. It is prepared against the commodities which are consumable and marketable as well. In this way it becomes easy to invest on these goods. Therefore a commodity paper is always prepared against an item which marketable, or which can be sold or which can be invested upon. There is always a qualitative definition required for supply and marketing of these commodities and for that a commodity paper is required.
There is either complete or partial security of the commodities against which the commodity paper is taken. This means that the market will consider the copies of these commodities will not be treated if produced in the market. Consumable but costly goods like copper and petroleum are the examples of such goods.