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IMC Unit 2 > Chapter Eight > Flashcards

Chapter Eight Flashcards

1
Q

What are the commodities?

A

Where raw or primary products are traded - energy, previous metals, base metals, agricultural or soft commodities

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2
Q

Are interest rates considered to have a significant influence on commodity prices?

A

No, although they may have an affect on individual producers, it is not likely

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3
Q

Do commodity prices have volatile values?

A

Yes

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4
Q

What is the correlation of commodity futures with equity and bond markets?

A

Negative correlation

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5
Q

What do commodities provide a good hedge against?

A

Natural disasters

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6
Q

What can coffee be classified as?

A

Softs

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7
Q

What are downsides of investing in alternatives?

A

High transaction costs and low liquidity

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8
Q

What is a benefit of investing in alternatives?

A

Low correlation with other asset classes, providing diversification benefits

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9
Q

What is ETC?

A

ETC is an indirect form of commodity investment, rather than collectibles

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10
Q

Do commodities deteriorate over time?

A

Softs may deteriorate over time

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11
Q

What does a REIT provide?

A

An indirect exposure to the property market

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12
Q

What do exchange traded contracts usually track?

A

The price of a single commodity or a group of commodities comprising an index, by using futures contracts or at times the actual physical commodity held in storage

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13
Q

Why would you not hold hards in a portfolio?

A

If you want income generation

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14
Q

Why might you hold hards in a portfolio?

A

If you want to:
1. Hedge against inflation
2. Hedge against natural disasters
3. Portfolio diversification

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15
Q

What are the requirements of a company to qualify as a REIT?

A
  1. UK resident closed-ended company
  2. Pay out at least 90% of its net taxable profits to investors
  3. No one investor owning more than 10% of the share of the REIT
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16
Q

Does a company have to obtain a listing on the LSE main market?

A

It must obtain a listing though this does not have to be on the main market, it may be on AIM or any recognised overseas market

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17
Q

What are the characteristics of property?

A
  1. Higher transaction costs
  2. Indivisible compared to other
  3. Illiquid
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18
Q

Is property homogeneous?

A

No, it is heterogeneous as it comes in all different shapes and sizes

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19
Q

What are the typical characteristics of commercial property?

A
  1. Medium to long term leases
  2. Tenant repairing
  3. Mainly income returns
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20
Q

How often are rent reviews for commercial property?

A

Every five years

21
Q

What is the main class of property investors?

A

Pension and life companies

22
Q

What do residential property investros primarily seek?

A

Capital returns

23
Q

Is the supply of property elastic or inelastic?

24
Q

What property fees are paid by a buyer?

A

Legal fees and stamp duty land tax

25
Who pays the estate agent fees?
The seller
26
What are direct property investments?
1. Freehold 2. Life interest 3. Leasehold
27
What is not a direct property investment?
REIT
28
Are REITs open or closed ended funds?
They are closed ended
29
How much profit must REITs payout?
At least 90%
30
Do REITs require a listing?
Yrs
31
Where must the majority of profits come from for REITs?
They must receive at least 75% of profits from property letting business
32
Is ETC a method of indirect property investment?
No, ETC = exchange traded contract in commodities, not a property investment
33
What are common characteristics of property investment?
1. Government intervention 2. High management costs 3. Inelastic supply
34
What are the major exchanges for energy derivatives?
The New York Mercantile Exchange (NYMEX), part of CME Group, and ICE Futures Europe in London
35
Which futures contracts are traded on ICE Futures Europe?
Brent Crude Oil futures
36
Which contracts are traded on NYMEX?
Light Sweet Crude Oil
37
What are the two property derivatives?
IPD Index swaps, Property Income Certificates, and MSCI IPD property futures contracts that are traded on Eurex
38
What does a property derivative provide?
It gives investors a return that reflects the performance of the direct property market and are aimed at insitutional investors and high net worth individuals
39
Which indices are constructed to measure commodity price movements?
1. Refinitiv/Core Commodity CRB Index 2. S&P Dow Jones Commodity Index (DJCI) 3. Bloomberg Commodity Index (BCOM) 4. Rogers International Commodity Index (RICI)
40
What are types of real assets?
Real estate, infrastructure, and natural resources
41
What are features of real assets?
They are typically less liquid than traditional finance assets such as equities and bonds and offer diversification possibilites since they have a low correlation with equities and bonds
42
Why are real assets often considered a good hedge against inflation?
As they often represent investments in firms with strong pricing power and facing inelastic demand
43
Is cash a real asset?
No
44
Where a hedge funds generally located?
Offshore
45
Why would an investor choose a short/long hedge fund?
To have a market-neutral exposure
46
How do cryptocurrencies operate?
Via decentralised networks whereby investors deal directly with each other rather than operating within a centralised exchange
47
What is blockchain?
It is an example of a distributed ledger technology (DLT) that uses a consensus algorithm to confirm the validity of a transaction
48
What is a 'fiat' currency?
A currency backed by the government and can be in the form of physical money or represented electronically

IMC Unit 2 (11 decks)

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