CAIA - 22 - Key Concepts in Commodity Markets

Question 1

Effects of the business cycle vary across and within commodity sectors. For instance, responses to the business cycle are ___ for most energy commodities but quite ___ for agricultural commodities.

Answer 1

Effects of the business cycle vary across and within commodity sectors. For instance, responses to the business cycle are similar for most energy commodities but quite varied for agricultural commodities.

Question 2

___ ___ is the main currency in which commodities are traded globally.

Answer 2

U.S. Dollar is the main currency in which commodities are traded globally.

Question 3

The clearest relationship between commodity prices and the business cycle is with ___ and ___ ___.

Answer 3

The clearest relationship between commodity prices and the business cycle is with energy and industrial materials.

Question 4

Factors that affect the relationship between commodity prices and the business cycle are:

1. I___ ___
2. C___ ___ ___
3. I___
4. D___.

Answer 4

Factors that affect the relationship between commodity prices and the business cycle are

1. Interest rates
2. Central bank policies
3. Inflation
4. Demand.

Question 5

High ___ ___ ___increase the opportunity cost for investors who have commodities in storage

Answer 5

High real interest rates increase the opportunity cost for investors who have commodities in storage

Question 6

High real interest rates ___ the incentive for extracting commodities today rather than tomorrow.

Answer 6

High real interest rates increase the incentive for extracting commodities today rather than tomorrow.

Question 7

High real interest rates ___ the desire of companies to carry inventories.

Answer 7

High real interest rates decrease the desire of companies to carry inventories.

Question 8

High real interest rates ___ investors to move out of commodity contracts into fixed-income instruments.

Answer 8

High real interest rates encourages investors to move out of commodity contracts into fixed-income instruments.

Question 9

High real interest rates ___ the market price of commodities.

Answer 9

High real interest rates reduce the market price of commodities.

Question 10

At times, commodity prices can still decline in a low interest rate environment. This was demonstrated in 20___-___ and was due to the ___of the ___in commodities.

Answer 10

At times, commodity prices can still decline in a low interest rate environment. This was demonstrated in 2014-16 and was due to the maturation of the supercycle in commodities.

Question 11

When a central bank adopts a contractionary monetary policy to try and fight inflation, the short-term real interest rate ___, which causes commodity prices to ___.

Answer 11

When a central bank adopts a contractionary monetary policy to try and fight inflation, the short-term real interest rate increases, which causes commodity prices to decline.

Question 12

High inflation ___ prices of commodities. This is driven by investors seeking an ___ ___and also usually during expansionary phases of the economy when demand for ___ ___is higher.

Answer 12

High inflation increases prices of commodities. This is driven by investors seeking an inflation hedge and also usually during expansionary phases of the economy when demand for commodity inputs is higher.

Question 13

___ ___effects dominate the pricing relationship for agricultural and livestock commodities, while ___dominates the pricing relationship for energy-based commodities and industrial metals.

Answer 13

Interest rate effects dominate the pricing relationship for agricultural and livestock commodities, while inflation dominates the pricing relationship for energy-based commodities and industrial metals.

Question 14

According to the ___ ___, prices of exhaustible commodities should increase at the prevailing interest rate.

Answer 14

According to the hotelling theory, prices of exhaustible commodities should increase at the prevailing interest rate.

Question 15

The hotelling theory (is/is not) consistent with empirical data.

Answer 15

The hotelling theory is not consistent with empirical data.

Question 16

The hotelling theory assumes that production costs (do/do not) change.

Answer 16

The hotelling theory assumes that production costs do not change.

Question 17

Unpredictable changes in ___ for a commodity may cause commodity prices to change at rates that differ from the prevailing interest rate.

Answer 17

Unpredictable changes in demand for a commodity may cause commodity prices to change at rates that differ from the prevailing interest rate.

Question 18

Commodity ___ refer to long periods of increasing commodity prices followed by long periods of decreasing prices cause by supply shocks. Evidence suggests that they last ___-___years.

Answer 18

Commodity supercycles refer to long periods of increasing commodity prices followed by long periods of decreasing prices cause by supply shocks. Evidence suggests that they last 30-40 years.

Question 19

Non-oil supercycles follow ___.

Answer 19

Non-oil supercycles follow GDP.

Question 20

The average of each supercycle of non-oil commodities tends to be ___ than that of the previous cycle.

Answer 20

The average of each supercycle of non-oil commodities tends to be lower than that of the previous cycle.

Question 21

___ ___had the strongest and steepest long-term downward trend during the 20th century, followed by ___-___ ___ and ___. In contrast, real ___prices had a long-term upward trend.

Answer 21

Tropical agriculture had the strongest and steepest long-term downward trend during the 20th century, followed by non-tropical agriculture and metals. In contrast, real oil prices had a long-term upward trend.

Question 22

Between 2003 and 2008, real prices of energy, metals and food commodities ___ significantly.

Answer 22

Between 2003 and 2008, real prices of energy, metals and food commodities increased significantly.

Question 23

The current supercycle expansion can be attributed to ___.

Answer 23

The current supercycle expansion can be attributed to China.

Question 24

Commodity trading firms, in pursuing trading profits, serve as ___ of ___.

Answer 24

Commodity trading firms, in pursuing trading profits, serve as agents of transformation.

Question 25

Trading firms transform commodities in 3 ways:

1. ___
2. ___
3. ___

Answer 25

Trading firms transform commodities in 3 ways:

1. Space

2. Time

3. Form

Question 26

___ transformations generally involve transporting commodities from regions where they are produced to regions in which they are consumed.

Answer 26

Spatial transformations generally involve transporting commodities from regions where they are produced to regions in which they are consumed.

Question 27

If a firm buys a commodity to store it for future delivery, they are engaging in a ___ transformation.

Answer 27

If a firm buys a commodity to store it for future delivery, they are engaging in a time transformation.

Question 28

If a firm takes a raw material and transforms it into another product, they are engaging in a ___ transformation.

Answer 28

If a firm takes a raw material and transforms it into another product, they are engaging in a form transformation.

Question 29

___ ___risk refers to risk associated with changes in spot commodity prices.

Answer 29

Flat price risk refers to risk associated with changes in spot commodity prices.

Question 30

Commodity trading firms typically have (a lot/little) exposure to flat price risk.

Answer 30

Commodity trading firms typically have little exposure to flat price risk.

Question 31

___ risk refers to a change in the difference between the price of the commodity being hedged and the price of the hedging instrument.

Answer 31

Basis risk refers to a change in the difference between the price of the commodity being hedged and the price of the hedging instrument.

Question 32

___ risk arises from timing mismatches between a commodity and its hedging instrument.

Answer 32

Spread risk arises from timing mismatches between a commodity and its hedging instrument.

Question 33

___ and ___traded are positively correlated and tend to increase with demand. This can be a risk if firms are dependent on profitability based on these metrics.

Answer 33

Margin and volumes traded are positively correlated and tend to increase with demand. This can be a risk if firms are dependent on profitability based on these metrics.

Question 34

The risk that a train breaks down for a commodity transported by rail is an example of ___ risk.

Answer 34

The risk that a train breaks down for a commodity transported by rail is an example of operational risk.

Question 35

Commodity trading firms that need to enter and exit positions quickly may be exposed to ___ risk.

Answer 35

Commodity trading firms that need to enter and exit positions quickly may be exposed to liquidity risk.

Question 36

___ ___risk arises due to limits on access to financing.

Answer 36

Funding liquidity risk arises due to limits on access to financing.

Question 37

Many commodity transactions have ___ leverage.

Answer 37

Many commodity transactions have high leverage.

Question 38

European inflation is ___ correlated with energy returns while asian inflation is ___correlated with energy returns.

Answer 38

European inflation is positively correlated with energy returns while asian inflation is negatively correlated with energy returns.

Question 39

Speculators are generally subject to ___ ___to ensure their actions do not drive commodity prices away from fundamental supply-and-demand-based levels.

Answer 39

Speculators are generally subject to position limits to ensure their actions do not drive commodity prices away from fundamental supply-and-demand-based levels.

Question 40

___ ___in commodities refers to buying a commodity with the expectation that its price will increase.

Answer 40

Price speculation in commodities refers to buying a commodity with the expectation that its price will increase.

Question 41

Changes in spot prices and volatility have been attributed to the ___ of ___.

Answer 41

Changes in spot prices and volatility have been attributed to the financialization of commodities.

Question 42

Prices have ___ for commodities that have not developed futures markets or institutional fund investments.

Answer 42

Prices have increased for commodities that have not developed futures markets or institutional fund investments.

Question 43

Markets in which index trading is greatest as a percentage of open interest have experienced ___ prices.

Answer 43

Markets in which index trading is greatest as a percentage of open interest have experienced decreasing prices.

Question 44

Speculation in agriculture and oil markets has remained ___.

Answer 44

Speculation in agriculture and oil markets has remained stable.

Question 45

A report by the G20 on commodity speculation indicated that increased participation in these markets has ___ market liquidity and ___correlation.

Answer 45

A report by the G20 on commodity speculation indicated that increased participation in these markets has increased market liquidity and increased correlation.

Question 46

Most commodity investing is performed directly or indirectly using ___ and ___.

Answer 46

Most commodity investing is performed directly or indirectly using futures and forwards.

Question 47

___ ___are the key environment for price discovery in most commodity markets.

Answer 47

Futures markets are the key environment for price discovery in most commodity markets.

Question 48

The ___ of ___explains the relationship between spot and futures prices of commodities by examining commodity inventory levels and the benefit of holding physical commodities.

Answer 48

The theory of storage explains the relationship between spot and futures prices of commodities by examining commodity inventory levels and the benefit of holding physical commodities.

Question 49

The economic benefit of physically owning an asset is referred to as the ___ ___.

Answer 49

The economic benefit of physically owning an asset is referred to as the convenience yield.

Question 50

The ___ ___provides a non-monetary measure of how much a buyer would pay to avoid the inconvenience of ordering and waiting for delivery of new inventory.

Answer 50

The convenience yield provides a non-monetary measure of how much a buyer would pay to avoid the inconvenience of ordering and waiting for delivery of new inventory.

Question 51

The convenience yield my be viewed in terms of an embedded ___ ___associated with owning a commodity, since the holder of the commodity can decide how to use it.

Answer 51

The convenience yield my be viewed in terms of an embedded timing option associated with owning a commodity, since the holder of the commodity can decide how to use it.

Question 52

All real assets have a convenience yield, which depends in part on inventory levels. As inventories decline, the convenience yield ___.

Answer 52

All real assets have a convenience yield, which depends in part on inventory levels. As inventories decline, the convenience yield increases.

Question 53

Market prices can be used to measure ___ ___ ___, which is the convenience yield that matches buyers and sellers.

Answer 53

Market prices can be used to measure marginal convenience yield, which is the convenience yield that matches buyers and sellers.

Question 54

Buyers with higher convenience yields earn a ___ ___.

Answer 54

Buyers with higher convenience yields earn a consumer surplus.

Question 55

A commodity’s convenience yield is often considered comparable to a ___ ___.

Answer 55

A commodity’s convenience yield is often considered comparable to a stock dividend.

Question 56

The level of convenience yield depends on 3 factors:

1. ___ ___
2. ___ ___
3. ___ ___

Answer 56

The level of convenience yield depends on 3 factors:

1. Inventory level

2. Commodity price

3. Futures price

Question 57

Inventory levels are ___ correlated with volatility of commodity prices and with convenience yield.

Answer 57

Inventory levels are negatively correlated with volatility of commodity prices and with convenience yield.

Question 58

Commodity prices are ___ correlated with volatility and convenience yield.

Answer 58

Commodity prices are positively correlated with volatility and convenience yield.

Question 59

Convenience yield is ___ correlated with speculative increases in futures prices.

Answer 59

Convenience yield is negatively correlated with speculative increases in futures prices.

Question 60

The ___ of ___represents the unrecoverable cost of buying and storing a commodity and is composed of four key components.

Answer 60

The cost of carry represents the unrecoverable cost of buying and storing a commodity and is composed of four key components.

Question 61

The four key components of carry are:

1. ___ costs
2. ___costs
3. ___
4. ___ ___

Answer 61

The four key components of carry are:

1. Financing costs
2. Storage costs
3. Spoilage
4. Convenience yield

Question 62

Cost of Carry = (equation)

Answer 62

Cost of Carry = Financing Cost + Storage Cost + Spoilage Cost - Convenience Yield

Question 63

Break-even futures price = (equation)

Answer 63

Break-even futures price = Spot Price + Cost of Carry

Question 64

The simultaneous cash purchase and futures market sale of a commodity to earn a riskless profit is referred to as ___-and-___ ___.

Answer 64

The simultaneous cash purchase and futures market sale of a commodity to earn a riskless profit is referred to as cash-and-carry arbitrage.

Question 65

If the prevailing futures price is less than the break-even futures price, buyers will either use the futures market for delivery or buy the commodity today. In this case, a ___ ___ -and-___ ___trade can be implemented to earn a riskless profit by combining a short position in the spot market with a long position in the mispriced futures contract.

Answer 65

If the prevailing futures price is less than the break-even futures price, buyers will either use the futures market for delivery or buy the commodity today. In this case, a reverse cash-and-carry arbitrage trade can be implemented to earn a riskless profit by combining a short position in the spot market with a long position in the mispriced futures contract.

Question 66

Futures price = (equation)

Answer 66

Futures price = Spot price + costs - convenience yield

Question 67

The relationship between time-to-delivery and commodity futures contract prices is referred to as the ___ ___.

Answer 67

The relationship between time-to-delivery and commodity futures contract prices is referred to as the forward curve.

Question 68

When the futures prices is higher than the spot price, the forward curve is upward sloping and the environment is described as being in ___.

Answer 68

When the futures prices is higher than the spot price, the forward curve is upward sloping and the environment is described as being in contango.

Question 69

In a contango market, convenience yield is ___.

Answer 69

In a contango market, convenience yield is low.

Question 70

When the futures price is below the spot price, the forward curve is downward sloping and the environment is in ___.

Answer 70

When the futures price is below the spot price, the forward curve is downward sloping and the environment is in backwardation.

Question 71

When the market is in backwardation, convenience yield tends to be ___.

Answer 71

When the market is in backwardation, convenience yield tends to be high.

Question 72

The ___ ___ ___maintains that the current futures price for a commodity equals the commodity’s expected future spot price.

Answer 72

The unbiased expectation hypothesis maintains that the current futures price for a commodity equals the commodity’s expected future spot price.

Question 73

Tests of the unbiased expectation hypothesis are (positive/negative/mixed).

Answer 73

Tests of the unbiased expectation hypothesis are mixed.

Question 74

A ___ ___ ___strategy involves speculators who identify commodity prices that deviate from their expected value and buy or sell them or enter into spread trades.

Answer 74

A relative value arbitrage strategy involves speculators who identify commodity prices that deviate from their expected value and buy or sell them or enter into spread trades.

Question 75

___ ___compares the futures price with the expected futures spot price, whereas ___compares the futures price with the current spot price.

Answer 75

Normal backwardation compares the futures price with the expected futures spot price, whereas backwardation compares the futures price with the current spot price.

Question 76

According to the theory of storage, futures prices are ___ volatile than spot prices.

Answer 76

According to the theory of storage, futures prices are less volatile than spot prices.

Question 77

According to the ___ of ___, futures prices are more volatile than spot prices.

Answer 77

According to the theory of storage, futures prices are less volatile than spot prices.

Question 78

The unbiased expectation hypothesis assumes that markets are ___ and investors do not demand a ___ ___.

Answer 78

The unbiased expectation hypothesis assumes that markets are perfect and investors do not demand a risk premium.

Question 79

The unbiased expectation hypothesis (does/does not) explain commodity forward curves well.

Answer 79

The unbiased expectation hypothesis does not explain commodity forward curves well.

Question 80

Under normal ___, long commodity futures positions have the potential to earn a positive risk premium.

Answer 80

Under normal backwardation, long commodity futures positions have the potential to earn a positive risk premium.

Question 81

The backwardation argument is similar to the ___ ___ ___, which states that borrowers prefer long maturities, while lenders prefer short maturities

Answer 81

The backwardation argument is similar to the liquidity preference hypothesis, which states that borrowers prefer long maturities, while lenders prefer short maturities

Question 82

The ___ ___ uses the relationship between inventory levels and the convenience yield to relate the relationship between spot and futures prices to inventory levels and other factors.

Answer 82

The storage model uses the relationship between inventory levels and the convenience yield to relate the relationship between spot and futures prices to inventory levels and other factors.

Question 83

According to the theory of storage, the forward curve is upward sloping when current inventory levels are ___ demand levels and downward sloping when inventories are extremely ___.

Answer 83

According to the theory of storage, the forward curve is upward sloping when current inventory levels are above demand levels and downward sloping when inventories are extremely low.

Question 84

Forward curves for expensive or difficult-to-store commodities typically have ___ slopes.

Answer 84

Forward curves for expensive or difficult-to-store commodities typically have steep slopes.

Question 85

Storage models also consider the risk of ___-___, which occurs when inventory levels drop to zero and consumption depends entirely on production and transportation.

Answer 85

Storage models also consider the risk of stock-out, which occurs when inventory levels drop to zero and consumption depends entirely on production and transportation.

Question 86

Stock-outs occur in markets that are subject to ___ ___or ___. Commodity users avoid it by actively hedging at the points of the ___ ___ that are most susceptible to stock-outs.

Answer 86

Stock-outs occur in markets that are subject to seasonal production or demand. Commodity users avoid it by actively hedging at the points of the forward curve that are most susceptible to stock-outs.

Question 87

The theory of storage’s implication of a negative relationship between convenience yield and the inventory level is exhibited in the ___ ___, which describes the relationship between inventory levels and the spread between spot and futures prices.

Answer 87

The theory of storage’s implication of a negative relationship between convenience yield and the inventory level is exhibited in the working curve, which describes the relationship between inventory levels and the spread between spot and futures prices.

Question 88

The working curve is typically a ___, ___sloping curve. The curve is ___due to embedded real options related to ___ ___.

Answer 88

The working curve is typically a concave, upwardly sloping curve. The curve is nonlinear due to embedded real options related to inventory levels.

Question 89

When inventory is ___, commodity users are exposed to costs related to searching for inventory, delays, transportation and rush charges. If inventories are depleted, they may face significant costs from ___-___, suggesting high ___ ___.

Answer 89

When inventory is low, commodity users are exposed to costs related to searching for inventory, delays, transportation and rush charges. If inventories are depleted, they may face significant costs from stock-outs, suggesting high convenience yields.

Question 90

When inventory is extremely high, marginal convenience yields can be ___.

Answer 90

When inventory is extremely high, marginal convenience yields can be negative.

Question 91

The ___ ___ ___explains that users of commodities that are directly consumed by the public rarely use the forward market to hedge future supplies.

Answer 91

The preferred habitat hypothesis explains that users of commodities that are directly consumed by the public rarely use the forward market to hedge future supplies.

Question 92

According to the preferred habitat hypothesis, the relationship between the expected spot and forward rates varies ___-___over different delivery dates due to supply and demand pressures in ___ ___of the curve.

Answer 92

According to the preferred habitat hypothesis, the relationship between the expected spot and forward rates varies non-monotonically over different delivery dates due to supply and demand pressures in localized regions of the curve.

Question 93

The preferred habitat hypothesis is a general version of the ___ ___hypothesis.

Answer 93

The preferred habitat hypothesis is a general version of the liquidity preference hypothesis.

Question 94

In ___ ___, markets can be segregated across geographies or time. In these markets, the forward curve for the commodity (is/is not) useful.

Answer 94

In segmented markets, markets can be segregated across geographies or time. In these markets, the forward curve for the commodity is not useful.

Question 95

Normal ___ describes an environment in which commodity users have a stronger incentive to hedge than producers, so users need to entice sellers into the forward market.

Answer 95

Normal contango describes an environment in which commodity users have a stronger incentive to hedge than producers, so users need to entice sellers into the forward market.

Question 96

The crude oil futures market often has a ___ curve.

Answer 96

The crude oil futures market often has a humped curve.

Question 97

Option based models focus on options to extract a ___ ___or ___options.

Answer 97

Option based models focus on options to extract a natural resource or inventory options.

Question 98

Producers can reduce or stop production if a commodity price falls below its marginal cost of production. This option ___ the volatility of commodity prices for future delivery and represents the option to extract a ___ ___.

Answer 98

Producers can reduce or stop production if a commodity price falls below its marginal cost of production. This option reduces the volatility of commodity prices for future delivery and represents the option to extract a natural resource.

Question 99

Commodities are ___ volatile when prices are increasing than when they are decreasing. This ___ ___means that owning physical inventory is preferable to holding long-term futures contracts. This also leads to ___.

Answer 99

Commodities are more volatile when prices are increasing than when they are decreasing. This volatility asymmetry means that owning physical inventory is preferable to holding long-term futures contracts. This also leads to backwardation.

Question 100

Commodity futures returns may be decomposed into three sources:

1. ___ return
2. ___return
3. ___Yield

Answer 100

Commodity futures returns may be decomposed into three sources:

1. Spot return
2. Collateral return
3. Roll Yield

Question 101

___ returns are generally driven by fundamental market factors. They generally ___-___and (are/are not) good sources of return. The ___model asserts that the spot price should be less than the prevailing interest rates

Answer 101

Spot returns are generally driven by fundamental market factors. They generally mean-revert and are not good sources of return. The hotelling model asserts that the spot price should be less than the prevailing interest rates

Question 102

___ yield results from the return on the cash collateral invested in liquid assets.

Answer 102

Collateral yield results from the return on the cash collateral invested in liquid assets.

Question 103

___ return is the portion of a futures contract’s return resulting from a change in basis over time. It will be positive for markets that are in ___. The main source of return is the presence of the ___ ___.

Answer 103

Roll return is the portion of a futures contract’s return resulting from a change in basis over time. It will be positive for markets that are in backwardation. The main source of return is the presence of the convenience yield.

Question 104

Studies have shown that ___ ___and ___ ___represent the majority of a commodity investment’s total return and that ___ ___provides a diversification benefit.

Answer 104

Studies have shown that collateral yield and roll return represent the majority of a commodity investment’s total return and that spot return provides a diversification benefit.

Question 105

If the forward curve is in backwardation, it may indicate that the commodity is ___ because a premium is being offered for immediate delivery of the commodity.

Answer 105

If the forward curve is in backwardation, it may indicate that the commodity is scarce because a premium is being offered for immediate delivery of the commodity.

Question 106

Empirical studies find (positive/negative/no) correlation between commodity futures returns and inflation.

Answer 106

Empirical studies find positive correlation between commodity futures returns and inflation.

Question 107

Inflation and commodity correlations fluctuate (a lot/very little) over the short run.

Answer 107

Inflation and commodity correlations fluctuate a lot over the short run.

Question 108

Commodities that are not easily stored serve as a (better/worse) inflation hedge.

Answer 108

Commodities that are not easily stored serve as a better inflation hedge.

Question 109

Commodities’ inflation hedging property is greater when inflation is (expected/unexpected).

Answer 109

Commodities’ inflation hedging property is greater when inflation is unexpected.

Question 110

Correlation coefficients between a US Dollar Index and commodity prices is (positive/negative).

Answer 110

Correlation coefficients between a US Dollar Index and commodity prices is negative.

Question 111

Some countries depend heavily on the export of commodities. The currencies of these countries, referred to as ___ ___, tend to be have high (positive/negative) correlation with commodity prices.

Answer 111

Some countries depend heavily on the export of commodities. The currencies of these countries, referred to as commodity currencies, tend to have high positive correlation with commodity prices.

Question 112

The financialization of commodities has led to 2 notable changes:

1. Commodity currencies have a (stronger/weaker) relationship with broad commodity indices than local commodities.
2. Commodity currencies (are/are not) effective predictors of future commodity prices.

Answer 112

The financialization of commodities has led to 2 notable changes:

1. Commodity currencies have a stronger relationship with broad commodity indices than local commodities.
2. Commodity currencies are not effective predictors of future commodity prices.

Question 113

The ___ ___can be attributed to commodity prices’ tendency to be mean-reverting while exhibiting low correlations with other commodities. The yield is higher when portfolio constituents are ___and have ___correlations.

Answer 113

The rebalancing yield can be attributed to commodity prices’ tendency to be mean-reverting while exhibiting low correlations with other commodities. The yield is higher when portfolio constituents are volatile and have low correlations.

Question 114

A commodity portfolio is likely to have (greater/worse) rebalancing benefits than a stock-bond portfolio.

Answer 114

A commodity portfolio is likely to have greater rebalancing benefits than a stock-bond portfolio.

Question 115

An investment’s geometric mean may be expressed as:

Answer 115

Question 116

A number of factors raise concerns that past commodity returns will be of little value moving forward. For instance, market have become ___ and may not provide the same ___benefit moving forward.

Answer 116

A number of factors raise concerns that past commodity returns will be of little value moving forward. For instance, market have become financialized and may not provide the same diversification benefit moving forward.