Baran

 

2 、Suppose the owner of a commodity decides to lend out the commodity. If the commodity has a continuously compounded convenience yield of c, proportional to the value of the commodity, which of the following best represents the lowest forward price?

Baran

 

The correct answer is B

 

The owner of a commodity is able to create a range of no-arbitrage prices as follows: .

The lower bound adjusts for the convenience yield and therefore explains why forward prices may appear lower at times when the convenience yield is not accounted for. The upper bound depends on storage costs but not on the convenience yield.

Baran

 

AIM 11: Discuss factors that impact gold, corn, natural gas, and crude oil futures prices.

1、Consider the factors that affect the price of futures contracts on various commodities. Which of the following statements does not accurately describe the relationship between a commodity’s futures price and its underlying factors?

A) Natural gas is produced relatively consistently but has seasonal demand, causing the futures price to rise steadily in the fall months, since natural gas is too expensive to store.

B) The cost of storing corn, which has relatively constant demand, causes the futures price to rise until the next harvest at which point the price falls.

C) Relatively constant worldwide demand for oil and its ability to be cheaply transported keep oil prices relatively stable in the absence of short-run supply and demand.

D) Gold futures have an implicit lease rate which, because it is not actually paid by commodity borrowers, creates incentive to hold physical rather than synthetic gold as ideal strategy to gain gold exposure.

Baran

 

The correct answer is D

 

Gold can be loaned out to financial intermediaries and other investors willing to pay the lease rate (the price for borrowing the gold) to the lender. Thus, holding physical gold requires the investor to forgo earning the lease rate while also incurring storage costs. Therefore, the ideal gold exposure strategy is generally to hold synthetic gold.

Baran

 

2、Which of the following commodities is an example of seasonal production and constant demand?

A) Corn.

B) Gold.

C) Natural gas.

D) Oil.

Baran

 

The correct answer is A

 

Corn is an example of a commodity with seasonal production and a constant demand. Corn is produced in the fall of every year, but it is consumed throughout the year.

Baran

 

3、Which of the following commodities is an example of constant production and seasonal demand?

A) Gold.

B) Corn.

C) Natural gas.

D) Oil.

Baran

 

The correct answer is C

 

Natural gas is an example of a commodity with constant production but seasonal demand.

Baran

 

4、Which of the following commodities is very difficult to store and transport?

A) Gold.

B) Corn.

C) Natural gas.

D) Oil.

Baran

 

The correct answer is C

 

Natural gas is expensive to store, and demand in the United States peaks during high periods of use in the winter months. In addition, the price of natural gas is different for various regions due to high international transportation costs.