1. M any economists and market analysts are avid followers of the BALTIC DRY IND
ID: 2505511 • Letter: 1
Question
1. Many economists and market analysts are avid followers of the BALTIC DRY INDEX (BDI) as a forward looking mechanism that may shed a bit of light on the evolution of global economic activity and the price of commodities. The BDI has not performed well in the last few years of the economic crisis. Question: What sort of global demand and supply factors may account for the performance of this index? Should the price of oil be correlated with the price of other commodities? When may this correlation fail?
Many economists and market analysts are avid followers of the BALTIC DRY INDEX (BDI) as a forward looking mechanism that may shed a bit of light on the evolution of global economic activity and the price of commodities. The BDI has not performed well in the last few years of the economic crisis. Question: What sort of global demand and supply factors may account for the performance of this index? Should the price of oil be correlated with the price of other commodities? When may this correlation fail?Explanation / Answer
Even with the advances of the 20th and 21st centuries we still must turn to ships as our chepaest form of transportation. The effects of this in a globalized ecnonomy such as what we have come to experience mean only this, as transporation costs rise and fall, so do the prices of goods and services. I propose that at least some small part of the instabillity of this index during the economic crisis could be in large part due to the dependence of this index on isolated markets. This is to say that this index is relaint on a handful of countries with ports and other isolated industries(such as coal, and iron ore, and other raw ship costs).
The price of oil should always be considered with the price of other comoddities, every product requires oil to get from the manufacturer to the consumer regardless of whether it is even a petroleum product. Every product needs oil, and every service needs oil, whether it s directly or indirectly. However there are times when this correlation may be inflated due to isolated demand shocks within its dependent industries. This might cause inex to become unreliable.
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