LOS o: Discuss the relationship between commodities and inflation and explain why some commodity classes may provide a better hedge against inflation than others.

Q1. Which of the following commodities is least likely to have returns that are positively correlated with inflation?

A)   Energy.

B)   Industrial metals.

C)   Corn.

Q2. As an investment, the commodity energy is:

A)   nonstorable and a hedge against inflation.

B)   nonstorable but not a hedge against inflation.

C)   storable and a hedge against inflation.

Q3. Commodities can be categorized into storable and nonstorable. Which category, if any, should an analyst recommend as a hedge against inflation?

A)   Storable commodities.

B)   Both storable and nonstorable commodities.

C)   Nonstorable commodities.

LOS o: Discuss the relationship between commodities and inflation and explain why some commodity classes may provide a better hedge against inflation than others. fficeffice" />

Q1. Which of the following commodities is least likely to have returns that are positively correlated with inflation?

A)   Energy.

B)   Industrial metals.

C)   Corn.

Correct answer is C)

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.

Q2. As an investment, the commodity energy is:

A)   nonstorable and a hedge against inflation.

B)   nonstorable but not a hedge against inflation.

C)   storable and a hedge against inflation.

Correct answer is C)

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.

Q3. Commodities can be categorized into storable and nonstorable. Which category, if any, should an analyst recommend as a hedge against inflation?

A)   Storable commodities.

B)   Both storable and nonstorable commodities.

C)   Nonstorable commodities.

Correct answer is A)

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.

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