Reading 34: Alternative Investm....olio Management－LOS m direct, contrast, investment

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 CFA Institute Area 8-11, 13: Asset Valuation
Session 11: Alternative Investments for Portfolio Management
Reading 34: Alternative Investments Portfolio Management
LOS m: Compare and contrast indirect and direct commodity investment.

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Compared to direct investing in commodities, indirect investing is usually considered to be:

A) less convenient.

B) more convenient.

C) just as convenient, which is very convenient.

D) just as convenient, which is not very convenient.

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Answer and Explanation

This is generally true, but indirect investment via companies that deal in the commodity may provide limited exposure to the performance of the commodity.

[此贴子已经被作者于2008-9-18 17:18:57编辑过]

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Indirect investment in commodities has become easier for all investors because of the:

A) decline in hedging activities of managers in firms that produce and/or deal in commodities.

B) increase in hedging activities of managers in firms that produce and/or deal in commodities.

C) increased number of hedge funds in these markets.

D) the increase in the number of commodity indices.

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Answer and Explanation

There has been an increase in the number of indices making it easier for smaller investors to invest in commodities and take derivative positions in commodities.

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Compared to indirect investments in commodities, direct investments offer:

A) less exposure to commodity returns and higher carrying costs.

B) more exposure to commodity returns and lower carrying costs.

C) more exposure to commodity returns but higher carrying costs.

D) less exposure to commodity returns but lower carrying costs.

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Answer and Explanation

Often indirect investments via investing in a company producing the commodity provide lower exposure because the managers hedge the very exposure the investor seeks. Direct investments in commodities incur costs of storage called carrying costs.