Chapter 12 CAIA Flashcards - Commodities: Applications and Evidence

Question 1

Motivators for Seeking Commodity Exposure

Answer 1

There are two primary motivations for seeking exposure to commodity returns: diversification and return enhancement.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 277). Wiley. Edición de Kindle.

Question 2

Diversification

Answer 2

Diversification is the process of eliminating exposure to idiosyncratic risks while constructing a portfolio that matches the risk characteristics of a perfectly diversified portfolio.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 278). Wiley. Edición de Kindle.

Question 3

Inflation Risk

Answer 3

Inflation risk is the dispersion in economic outcomes caused by uncertainty regarding the value of a currency. Inflation risk emanates from the divergence between realized and anticipated rates of inflation (i.e., unanticipated inflation).

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 280). Wiley. Edición de Kindle.

Question 4

Convenience Yield

Answer 4

Convenience yield is the marginal economic benefit that an investor obtains for having physical ownership of a commodity rather than synthetic ownership through futures contracts or other financial securities.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 283). Wiley. Edición de Kindle.

Question 5

Commodity Linked Note

Answer 5

A commodity-linked note (CLN) is an intermediate-term debt instrument whose value at maturity is a function of the value of an underlying commodity or basket of commodities.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 285). Wiley. Edición de Kindle.

Question 6

Basis Risk

Answer 6

Basis risk is the dispersion in economic returns associated with changes in the relationship between spot prices and futures prices.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 287). Wiley. Edición de Kindle.

Question 7

Collateral Yield

Answer 7

collateral yield, is the interest earned from the riskless bonds or other money market assets used to collateralize the futures contract.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 289). Wiley. Edición de Kindle.

Question 8

Roll Yield

Answer 8

Roll yield or roll return is properly defined as the portion of the return of a futures position from the change in the contract’s basis through time.

Chambers, Donald R.; Anson, Mark J. P.; Black, Keith H.; Kazemi, Hossein. Alternative Investments: CAIA Level I (Wiley Finance) (p. 289). Wiley. Edición de Kindle.