Reading 48: Investing in Commodities-LOS a 习题精选 indicate, limited, natural, whereas, 2010

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Session 13: Alternative Asset Valuation
Reading 48: Investing in Commodities

LOS a: Explain why some 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 Adams' is correct.

B) both are incorrect.

C) only Peters' is correct.

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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.

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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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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) energy but not silver futures.

C) silver but not energy futures.

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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 TRUE?

A) Speculators can make profits in the commodity markets no matter how the commodity markets are acting.

B) Speculators can only make profits in the commodity market if the market is in backwardation.

C) In practice, commodity markets are in contango most of the time.

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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.

土豆妮

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