According to the area director for India and southeast Asia of International Wool Secretariat (IWS), SK Chaudhuri, the wool processors have already drafted this proposal for hedging price risks on Sydney Futures Exchange and Macquarine Wool Futures and will place their demands before the new government which is slated to resume office at the Centre on October 14. He said global wool price volatility is a major concern to both wool processors in India and to wool growers in Australia.

He stated that the Australian Wool Stock Company (AWSC) has only one million bales of wool of 300 kg each in its reserve. Earlier the stocks were as high as four million bales. The stocks has already started dwindling and is likely to be exhausted by October 2000. As the Australian government has already abolished the system ofpurchase floor pricing or minimum support price for wool in the country, the prices of wool will, henceforward, be governed totally by market forces when the AWSC's wool stocks exhauts by October, next year. Returns for both wool growers and processors can then be drastically affected by sudden changes in auction markets. As India is the fifth largest importer of Australian wool, use of financial tools like futures, options and forward contracts on global exchanges like Sydney Futures Exchange and Macquarie Wool Futures can assist Indian buyers to manage price risks between placing orders and receiving delivery. India imports about 11 million kg of greasy Australian wool every year and as the domestic processing sector is forecast to grow by at least 130 per cent the demand for greasy wool in the country is likely to increase.

Chadhuri stated that the exports of wool and woollen products by India has declined by 13.8 per cent in the first five months of the current fiscal being at only $ 107.1 million asagainst $ 124.2 million in the corresponding period in the previous year. But this situation is likely to change as wool processing industries in Europe and other developed countries are facing virtual closure due to high labour costs. This will ultimately leave India with a golden opportunity to boosts exports of woollen products.

India can also compete with China in exports of woollen products. Hence the processors in India should be given opportunity to hedge price risks on global wool exchanges.

Sydney Futures Exchange has contracts for greasy wool and is the largest financial futures and option exchange in the Asia Pacific region, offering round the clock trading access to over 70 derivative products in Australia, Asia and North America. Counter party risks in futures contracts here is minimal. Clearing house guarantees all trades relying on the process of initial margin money deposited in the exchange and subsequent variation margins.

The process of novation promotes liquidity. When a trade isdone in the futures market, the clearing house becomes buyer to every seller, and seller to every buyer. This means that a trader does not have to find the original party he dealt with to get out of a contract. A trader can trade with anyone in the market and the clearing house will sort out the paper work. At any time then, the trader can deal with most competitive bid or offer. The trading techniques in the exchange includes arbitrage, basis trading, spread trading, storage, intermonth futures spread trading and position trading.

Ord Minnett Jardine Fleming Futures, a recognised leader in Australian commodity broking industry is a floor member of the Sydney Exchange. It deals with wool and wheat contracts and provides services.

Macquarie wool futures are managed by Macquarie Bank in Australia and are available for wools in a range of microns and in varying sizes, whilst the Sydney Futures Exchange wool contracts are only for a fixed size and for 19, 21 and 23 micron wools.