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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?

A

Inelastic

24
Q

What property fees are paid by a buyer?

A

Legal fees and stamp duty land tax

25
Q

Who pays the estate agent fees?

A

The seller

26
Q

What are direct property investments?

A
  1. Freehold
  2. Life interest
  3. Leasehold
27
Q

What is not a direct property investment?

A

REIT

28
Q

Are REITs open or closed ended funds?

A

They are closed ended

29
Q

How much profit must REITs payout?

A

At least 90%

30
Q

Do REITs require a listing?

A

Yrs

31
Q

Where must the majority of profits come from for REITs?

A

They must receive at least 75% of profits from property letting business

32
Q

Is ETC a method of indirect property investment?

A

No, ETC = exchange traded contract in commodities, not a property investment

33
Q

What are common characteristics of property investment?

A
  1. Government intervention
  2. High management costs
  3. Inelastic supply
34
Q

What are the major exchanges for energy derivatives?

A

The New York Mercantile Exchange (NYMEX), part of CME Group, and ICE Futures Europe in London

35
Q

Which futures contracts are traded on ICE Futures Europe?

A

Brent Crude Oil futures

36
Q

Which contracts are traded on NYMEX?

A

Light Sweet Crude Oil

37
Q

What are the two property derivatives?

A

IPD Index swaps, Property Income Certificates, and MSCI IPD property futures contracts that are traded on Eurex

38
Q

What does a property derivative provide?

A

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
Q

Which indices are constructed to measure commodity price movements?

A
  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
Q

What are types of real assets?

A

Real estate, infrastructure, and natural resources

41
Q

What are features of real assets?

A

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
Q

Why are real assets often considered a good hedge against inflation?

A

As they often represent investments in firms with strong pricing power and facing inelastic demand

43
Q

Is cash a real asset?

A

No

44
Q

Where a hedge funds generally located?

A

Offshore

45
Q

Why would an investor choose a short/long hedge fund?

A

To have a market-neutral exposure

46
Q

How do cryptocurrencies operate?

A

Via decentralised networks whereby investors deal directly with each other rather than operating within a centralised exchange

47
Q

What is blockchain?

A

It is an example of a distributed ledger technology (DLT) that uses a consensus algorithm to confirm the validity of a transaction

48
Q

What is a ‘fiat’ currency?

A

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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