34: Commodities

Question 1

Production value weighted index will have more expsoure to:

Answer 1

more energy,
than livestock or softs

Production value weighted gives largest weight to most valuable commodity, energy is typically has the highest physical trade value

Question 2

Commodity Indexes can be:

Answer 2

equal weighted
factor weighted

Question 3

Roll methodology:

Passive strategy is to roll the expiring futures contracts into:

Answer 3

the near month contract each month

Question 4

Roll methodology:

Active strategy would maximize roll return by selecting:

Answer 4

further out contracts with:
greatest backwardation
&
smallest contango

Question 5

Rebalancing portfolio weights less frequently will increase returns when prices are:

Answer 5

trending

Question 6

Rebalancing portfolio weights more frequently will increase returns when prices:

Answer 6

price changes are
choppy
&
mean reverting

Question 7

Correlations between returns on commodity indexes are:
& correlations between commodity index returns & stocks/bonds are:

Answer 7

high amonst them
low w/ stocks & bonds

Question 8

Energy sector

Crude oil is impacted by:

Answer 8

• Economic cycles (demand is higher during expansion)
• Politics
• Technology

Question 9

Energy sector

Refined products (gasoline, heating, jet fuel) is impact by:

Answer 9

• short shelf life
• Seasonal factors (weather)
• natural gas- high costs of transportation
• politics

Question 10

Industrial metals are impacted by:

Answer 10

• tied to GDP growth
• tied to business cycles
• political factors (union strikes)

Question 11

Grains are impacted by:

Answer 11

• storage can be risky

Question 12

Precious metals are impacted by:

Answer 12

• business cycles
• demand is higher in wealthier places

Question 13

Livestock is impacted by:

Answer 13

• price of grain (food)
• tied to GDP
• Weather
• diseases

Question 14

Softs (cotton, coffee, sugar, cocoa) are impacted by:

Answer 14

• weather
• demand increases with increased incomes

Question 15

Of the energy sector, which commodities are impacted by refinery operations:

Answer 15

Impacted:
* Gasoline (refined product)
Not Impacted:
* Crude oil: can be stored
* Natural gas: can be used directly after extraction, but with high transportation costs