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Permanent link for this word: contango

Dec 6, 2004

This week's theme
Words from the world of money and finance

This week's words
contango
danegeld
usance
sumptuary
backwardation

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There's a knock on the door of my home office downstairs and Ananya enters with a smile on her face.
"Would you like to buy this pen?"
"Maybe," I say while I continue typing. "How much is it?"
"One cent."
"That sounds like a good price. I'll take it."
In exchange for a shiny penny, I become the proud owner of a pen from our kitchen.

A little later, there's another knock-knock on the door.
"Would you like to buy this painting for two cents?"
"Hmmm.. that's a bit expensive," I haggle, "How about one cent?"
"Nope, two cents! I made it myself."

One look at the bright crayon rainbow in her tiny hand and my heart overrides my head. I'm ready to splurge just to acquire that masterpiece for my collection.
"Oh, that's a beautiful painting. It's priceless!"
"No, it's not price less. It has a price: two cents."
Another transaction takes place in the world of business, and I become the proud owner of a work of art that still adorns my computer monitor.

A few more such business deals and Ananya has sold out. But that doesn't deter a determined entrepreneur, as I soon discover.

"Would you like this penny for four cents?"
I realize this business model needed a little tweak.
"Well, you've to give something of equal value. Why would I give four cents to have just one cent? Sorry, no!"
"Oh, come on, you want to," she says, with a beguiling smile.

I take her comments at face-value, that there is some value in this exchange. I dig into my wallet only to discover that my buying spree has taken toll on my bottom-line.
"I'm out of pennies," I tell her, "you can take this nickel."
"Nope, I want four pennies."

Thanks to a generous credit-line extended by the friendly banker at our very own First National Home Bank, I'm able to borrow emergency funds and close the sale.

"So what are you going to do with all this money?" I ask her.
"I'm going to give it to Coins for Kids," she proudly announces.
Coins for Kids is a program at her elementary school that encourages students to donate pennies to provide winter clothing for needy children.

Sometimes it takes just a few hours to get a lifetime's instruction in the school of business and life.

contango

noun: A premium paid by the buyer to the seller for deferring payment.

From alteration of continue or contingent.

"Gold markets are generally in contango because there is an infinite supply of gold in the vaults of central banks or in private hands."
Jim Jones; Hedging: It Takes Two to Tango on the Market; Business Day (Johannesburg, South Africa); Feb 08, 2002.

"In addition, the one-year contango, or the difference between spot prices and forward prices, has narrowed to $3 an ounce, from $15 a few years ago."
Bernard Simon; Gold Producers Are Split On Whether to Hedge; The New York Times; Jan 24, 2002.

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