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Challenges

Challenges

management

MEX, being the pioneer automated futures exchange of Nepal; we have foresight of our demographic challenges. As a landlocked country of South Asia, Republic of Nepal has its own market driven factors. Our Import based economy enables variable spreads in different commodities. As being the market place MEX has to keep keen sight on these factors, to establish a benchmark, fair and transparent price discovery. Warehouse management and its effective operation in terms of financial market is another challenge to MEX, which is being undertaken in right earnest. It's a small country but spread of local physical markets, lack of wide penetration of transport related infrastructure, quality backed existing warehouses and geographical variations are other major obstacles we faced as challenges for MEX.

Lack of sufficient penetration of internet in urban areas, computer literacy with minimum number of people, traditional method of agro-economy, non-commercialized agro production sector, smaller part of the land (Hardly 27% of land is eligible for production) for production, lower literacy rate, availability of sufficient number of skilled labour and lack of knowledge of derivatives market never deterred us in facing these challenges at MEX. Over and above, the available banking sectors were too not equipped to accept new dimension of markets that is another factor to convert any raw products as financial instruments. Even in the aforesaid extreme situations MEX stood to help for local development of agrarian communities, for the contribution of country's economy and to provide knowledge in urban areas about of futures markets and its benefits.

Other challenges:
  • The absence of suitable local aggregators with the capacity or capability to execute a hedging strategy.
  • Contract sizes at international markets that can be too large for developing country requirements.
  • Exchange rate controls or risk: that controls on foreign currency flow, or fluctuations in exchange rates would severely limit the possibility of or benefits from hedging.
  • Basis risk: that a wide divergence between price development in local physical markets and international futures markets would undermine the effectiveness of hedging.
  • Access to international markets becoming more constrained as a result of tighter credit lines of intermediaries in developed markets.