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Question

Difficulty: MediumConcept and Classification of Markets

In the classification of markets based on the time or nature of transactions, a market where contracts are agreed upon today for agricultural commodities to be delivered and paid for at a specified future date is referred to as a spot market.

Answer: Answer

Answer

The statement is False. A market where contracts are made for future delivery and settlement is a futures or forward market, whereas a spot market deals with immediate transactions.
The statement incorrectly defines a spot market. Spot transactions require immediate payment and physical delivery on the spot, while transactions involving deferred delivery at an agreed future date occur in futures or forward markets.

Step-by-Step Solution

1
Analyze the market classification criteria mentioned in the statement.
Markets are classified by the nature/timing of transactions into spot markets and futures/forward markets.
Understanding transaction timing is key to distinguishing market types.
2
Define spot market vs. futures market.
Spot markets deal with 'on-the-spot' (immediate) delivery and payment, while futures markets involve contracts for delivery at a specified future date.
Evaluating the statement against economic definitions reveals the mismatch.
3
Determine the validity of the statement.
Since the statement describes future delivery contracts as a spot market, it is incorrect.
The described scenario fits a futures market, making the statement false.

Key Concept

Classification of Markets by Nature of Transaction (Spot vs. Futures Markets)
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Topics

Concept and Classification of Markets

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