Reading 34: Alternative Investm....olio Management－LOS o following, returns, likely

tycoon

Which of the following commodities is least likely to have returns that are positively correlated with inflation?

A) Energy.

B) Industrial metals.

C) Precious metals.

D) Corn.

Answer and Explanation

Nonstorable agricultural commodities returns have returns that are negatively correlated to inflation. Storable commodities like energy and metals have returns that are positively correlated with inflation.

tycoon

Commodities can be categorized into storable and nonstorable. Which category, if any, should an analyst recommend as a hedge against inflation?

A) Nonstorable commodities.

B) Neither storable nor nonstorable commodities.

C) Both storable and nonstorable commodities.

D) Storable commodities.

---

Answer and Explanation

Storable commodities like energy and metals have returns that are positively correlated with inflation. The positive correlation means the real return will tend to remain positive even when inflation increases.

tycoon

As an investment, the commodity energy is:

A) nonstorable and a hedge against inflation.

B) storable but not a hedge against inflation.

C) storable and a hedge against inflation.

D) nonstorable but not a hedge against inflation.

---

Answer and Explanation

Commodities that are not agricultural products tend to be storable and hedges against inflation. Energy is both storable and its return has been correlated with inflation.