FIA Commodities Markets & Trading 2

Question 1

What is the 'basis' in commodity futures trading?

Accepted Answer

The difference between the local cash (spot) price and the futures price

Answer

The initial margin requirement for opening a futures position

Answer

The minimum price fluctuation allowed by the exchange per contract

Answer

The standardized contract size set by the commodity exchange

Question 2

A commodity producer who sells futures contracts to lock in a future sale price is engaging in:

Accepted Answer

A short hedge to protect against falling prices

Answer

Speculation on rising commodity prices

Answer

Arbitrage between spot and futures markets

Answer

A long hedge to protect against rising input costs

Question 3

Which factor does NOT typically serve as a direct driver of commodity spot prices?

Accepted Answer

The price-to-earnings (P/E) ratio of commodity-producing companies

Answer

Seasonal weather conditions and natural disasters

Answer

Supply and demand fundamentals in the physical market

Answer

Geopolitical events affecting production or transportation

Question 4

What does 'rolling over' a futures position mean in commodity trading?

Accepted Answer

Closing the near-month contract and simultaneously opening a later-month contract

Answer

Converting an expiring futures position into a spot market position

Answer

Increasing the total size of an existing futures position by adding contracts

Answer

Transferring a futures contract obligation to another market participant

Question 5

The cost-of-carry model for commodity futures pricing includes all of the following EXCEPT:

Accepted Answer

Dividend yield on the underlying asset

Answer

Physical storage costs for holding the commodity

Answer

Insurance costs for the stored commodity

Answer

Financing (interest) costs for purchasing the commodity

Question 6

What is 'convenience yield' in the context of commodity futures pricing?

Accepted Answer

The implicit benefit derived from holding physical commodity inventory

Answer

The interest rate earned on cash deposited as margin collateral

Answer

The profit opportunity available from arbitraging spot and futures prices

Answer

The coupon yield on commodity-linked structured notes

Question 7

When a commodity futures contract is 'marked to market' daily, this means:

Accepted Answer

Unrealized gains and losses are settled daily through the margin account

Answer

The contract price is fixed at inception and remains unchanged throughout its life

Answer

The physical commodity's quality is inspected and graded by the exchange each day

Answer

Contract settlement prices are published in financial newspapers each trading day