Direction: The financialisation of commodity trade and current extraordinary conditions in global financial markets could have influenced the spurt in prices. The recent reductions in interest rates in the US and the injection of liquidity have resulted in investors seeking new avenues such as commodity markets, in view of the turbulence in financial markets and the low return in treasuries. The relatively easy liquidity and low interest rates, by themselves, make holding of inventories attractive and thus induce greater volatility in commodity markets. The weakening of the US dollar is also advanced as a reason for the recent volatility in commodity markets, including food items. It is evident that this phenomenon is now also coinciding with the across-the-board rise in food prices.
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Which of the following shows a cause-effect relationship between its two components ?
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- Reduction in interest rates and abundance of food commodities
- Reduction in energy prices and increase in food commodity prices
- Injection of liquidity and the drop in investor confidence
- Dipping of US dollar value and the volatility in commodity markets
Correct Option: D
Lines 5 and 6 of the passage bring out this option as the correct one. The other options are neither mentioned nor implied in the passage.
