LOS m: Compare and contrast indirect and direct commodity investment.

Q1. 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.

Q2. Direct investment in commodities has become easier for all investors because of the:

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

B)   the increase in the number of commodity indices.

C)   increased number of hedge funds in these markets.

Q3. Compared to indirect investments in commodities, direct investments offer:

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

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

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

LOS m: Compare and contrast indirect and direct commodity investment. fficeffice" />

Q1. 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.

Correct answer is B)

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

Q2. Direct investment in commodities has become easier for all investors because of the:

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

B)   the increase in the number of commodity indices.

C)   increased number of hedge funds in these markets.

Correct answer is B)

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.

Q3. Compared to indirect investments in commodities, direct investments offer:

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

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

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

Correct answer is A)

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.

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