Unit 1.B

Question 1

Fundamentally, there is no difference between commodities and futures prices:

A: True
B: False

Answer 1

False: Although both prices respond to similar influences, a cash price values a specific lot of a commodity at a specific place (the spot); futures price values quantity and quality of a commodity for future delivery at a designated delivery point.

Question 2

Which of the following is NOT part of carrying charges:

A: Storage
B: Insurance
C: Transportation
D: Interest

Answer 2

C: Costs to transport a commodity to a designated delivery point vary widely by location. (Storage, Insurance, and Interest are all part of carrying charges)

Question 3

When spot prices are higher than the futures prices, this may be caused by:

A: premium basis
B: short supplies
C: inadequate storage space
D: all of the above

Answer 3

B: short or tight supply pushes spot prices higher than futures prices.

Question 4

A futures market is inverted when:

A: near delivery months sell at a premium to more distant delivery months
B: near delivery months sell at a discount to distant delivery months
C: case price is higher than the futures price
D: futures price is higher tan the cash price

Answer 4

A: An inverted futures market occurs when the price of the nearby futures contract is higher than the price of the distant futures contract.

Question 5

If cash cotton is 73.75 cents per pound and the nearby futures contact is 73.50, the basis is:

A: -.25
B: +.25
C: 73.50
D: insufficient information

Answer 5

B: Basis = cash price - futures price. In this case $73.75 - $73.50 = +.25c