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Reading 50: Investing in Commodities-LOS a 习题精选

Session 13: Alternative Asset Valuation
Reading 50: Investing in Commodities

LOS a: Explain why commodity futures such as gold have limited “contango,” whereas others such as oil often have natural “backwardation,” and indicate why these conditions might be less prevalent in the future.

 

 

Minnie Adams, CFA, and Cornelia Peters, CFA, are two sell side analysts working for a large London-based investment firm. They are engaged in a discussion on the recent surge in oil prices.

Adams states: “Airlines are the unfortunate victims of high oil prices. To mitigate the risk of further price increases, they frequently use commodity futures, driving futures prices above the spot price. I recall that this is referred to as backwardation.”

Peters adds: “Airlines are often not the only users of commodity futures. High oil prices attract speculators with long positions in oil futures for their portfolio. This would likely decrease the level of backwardation.”

With regard to their statements:

A)
only Peters' is correct.
B)
only Adams' is correct.
C)
both are incorrect.


 

Adams’ statement is incorrect, since when consumers’ demand for commodity futures drive futures prices above the spot price, this is referred to as contango. Peters’ statement is correct. Speculators with long positions in futures drive futures prices up, reducing backwardation and increasing contango.

[此贴子已经被作者于2011-3-22 15:21:01编辑过]

Kornelia van Melles is the rather eccentric owner of M’s, an upscale Amsterdam art gallery famous for its rare china and pottery. The gallery has been extremely profitable since its opening 15 years ago, in large part due to Melles’ ability to find unique art pieces and her large network of patrons. While most of her wealth is tied up in the gallery, she has also been able to build up a sizeable investment portfolio. The portfolio, until recently managed by a large investment management firm, was invested mainly in small-cap stocks which suffered significant losses over the past two years. Following a heated debate with her portfolio manager, Melles sold her investments, withdrew the funds and invested the entire proceeds in government treasury bills. The portfolio today is worth

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Brijn’s recommendation to include a collateralized futures position would entail:

A)
Investing in a risk-free asset and buying gold futures.
B)
Buying spot gold and shorting gold futures.
C)
Shorting spot gold and buying gold futures.


In a collateralized futures position, an investor holds both a risk-free asset (such as a US Treasury bill) and a long position in futures. (Study Session 13, LOS 48.a)


Brijn’s most appropriate response to Melles on the relationship between gold futures and their theoretical price should be:

A)
In the absence of trading frictions, arbitrageurs can buy and sell both spot commodity and futures, keeping gold’s price close to its theoretical value.
B)
Because of trading frictions and limitations on short selling, investors cannot take advantage of arbitrage opportunities, keeping gold’s price close to its theoretical value.
C)
Arbitrageurs keep gold’s price close to its theoretical value regardless whether there are trading frictions or limitations on short selling.


Precious metals such as gold trade close to their theoretical values. This is because these commodities can be easily bought, sold short and stored. Thus, in the absence of trading frictions or limitations on short selling investors can take advantage of perceived mispricings between the spot and the futures prices. These arbitrage trades would keep futures prices in equilibrium and close to their theoretical values. (Study Session 13, LOS 48.a)


Brijn’s comments on commodities providing inflation protection and diversification, respectively, are:

Inflation Diversification

A)
Incorrect Correct
B)
Correct Incorrect
C)
Correct Correct


Brijn’s first statement is correct. Commodities are generally valued in real terms. As a store of value or inputs in the production process, valuation in (constant) real terms ensures that when inflation erodes currency prices and increases output prices, commodities increase in value. Hence, they act as a natural hedge against inflation even when stock and bond values erode. Brijn’s second statement is incorrect. It is true that commodities are negatively correlated with most asset classes, providing diversification benefits. Demand for commodities, however, is weaker at the early stages of an economic expansion and strongest during the expansion’s late stages. (Study Session 13, LOS 48.e)


The year one rebalanced and year two ending values, respectively, of oil in Brijn’s commodities basket example are:

Year one Year two

A)

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An Australian managed futures fund is considering a speculative investment in commodity futures. If the fund is seeking investments with the smallest deviation from their theoretical minimum and maximum values, it would most likely invest in:

A)
neither silver nor energy futures.
B)
silver but not energy futures.
C)
energy but not silver futures.


Commodities that are easily purchased and have relatively low storage costs, such as precious metals, generally stay close to their theoretical values. This is because arbitrageurs could easily trade in both the spot and futures markets, forcing the futures price back to equilibrium.

In contrast, it is difficult and often impossible to take short positions in commodities which are not storable or that have high storage costs. Futures in such commodities, such as energy, can often deviate from their theoretical values.

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Which of the following statements regarding the commodity markets is CORRECT?

A)
Speculators can only make profits in the commodity market if the market is in backwardation.
B)
In practice, commodity markets are in contango most of the time.
C)
Speculators can make profits in the commodity markets no matter how the commodity markets are acting.


Speculators are compensated for bearing risk and are compensated by the discount or premium that hedgers give up when trading futures contracts. Therefore, speculators can make profits in the commodity markets no matter how the markets are acting. Note that commodity markets tend to be in backwardation most of the time, where the futures price is less than the expected future spot price.

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