Reading 74: Alternative Investments-LOS p 习题精选 2011, indirectly, following, investing, through

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Session 18: Alternative Investments
Reading 74: Alternative Investments

LOS p: Discuss the role of commodities as a vehicle for investing in production and consumption.

 

 

Money managers and individual investors can indirectly participate in the commodities market through all of the following investment vehicles EXCEPT:

A) futures contracts.

B) stocks of companies producing a commodity.

C) trading commodities in small denominations.

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Trading the commodities themselves is direct participation. Investors can participate indirectly though futures contracts or certain commodity-linked equities.

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While discussing the role of commodities as a vehicle for investment, a commentator makes the following statements:

Statement 1: During economic expansions, increasing supply tends to reduce the price of commodities.

Statement 2: Investing in commodities can give the investor exposure to fluctuations in production and consumption.

Are these two statements CORRECT?

Statement 1

Statement 2

A) Correct Correct

B) Incorrect Incorrect

C) Incorrect Correct

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Statement 1 is incorrect. During expansions, increasing demand for finished goods causes an increase in demand for the commodities needed to produce them, resulting in higher prices for commodities. Statement 2 is correct. Commodities can give an investor exposure to the economy’s production and consumption growth, with swings in commodity prices likely to be larger than changes in finished goods prices.