PRMIA Exam 8006 Topic 10 Question 94 Discussion

Actual exam question for PRMIA's 8006 exam

Question #: 94
Topic #: 10

[All 8006 Questions]

The two components of risk in a commodities futures portfolio are:

AChanges in the convenience yield and storage costs

BChanges in spot prices and carrying costs, also called commodity lease rates

CChanges in interest rates and spot prices

DThe risk from change in basis and interest rates

Show Suggested Answer

Suggested Answer: B

Commodity futures prices can be expressed as the summation of their spot prices and the carrying costs. Therefore any changes in either of these two would be a risk to the futures prices, and Choice 'b' is the correct answer. It is common to decompose complex commodity portfolios into underlying equivalent spot positions and the carrying costs, which includes interest, convenience yield and storage costs. For liquid commodities such as gold where changes of a short squeeze are low, interest costs dominate the carryings costs. Choice 'b' is the correct answer as it is most complete and covers the elements in the other choices. The 'lease rate' for a commodity is equivalent to (Fwd Price - Spot Price)/Spot Price, and comprises the interest and storage costs and the convenience yield. The other choices do not represent complete answers.

by Vannessa at Aug 04, 2024, 01:17 AM

Limited Time Offer

25%

Off

Get Premium 8006 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Janna

2 months ago

I believe it's B) Changes in spot prices and carrying costs because those factors directly impact the value of the futures contract.

upvoted 0 times

...

Raymon

2 months ago

I'm not sure, I think it could also be D) The risk from change in basis and interest rates.

upvoted 0 times

...

Stephane

2 months ago

I agree with Galen, spot prices and carrying costs are key components of risk in commodities futures.

upvoted 0 times

...

Galen

3 months ago

I think the answer is B) Changes in spot prices and carrying costs.

upvoted 0 times

...

Vonda

3 months ago

Sabrina, I see your point. Changes in basis and interest rates can also contribute to risk in a commodities futures portfolio.

upvoted 0 times

...

Sabrina

3 months ago

I'm not sure about that. I think it might be D) The risk from change in basis and interest rates.

upvoted 0 times

...

Alyce

3 months ago

I agree with Vonda. Spot prices and carrying costs are key components of risk in commodities futures.

upvoted 0 times

...

Tora

3 months ago

B is the way to go. Spot prices and carrying costs - the secret sauce of a successful commodities portfolio. 'Futures so bright, gotta wear shades!'

upvoted 0 times

...

Karina

3 months ago

Hmm, D looks good to me. Basis risk is the real wild card in commodities trading. 'The agony and the ecstasy,' am I right?

upvoted 0 times

...

Susana

3 months ago

I'm going with C. Gotta keep an eye on those interest rates, they can really mess with your portfolio.

upvoted 0 times

Shelba

3 months ago

User 2

upvoted 0 times

...

Kanisha

3 months ago

User 1

upvoted 0 times

...

Vonda

3 months ago

I think the answer is B) Changes in spot prices and carrying costs, also called commodity lease rates.

upvoted 0 times

...

Joanna

3 months ago

Option B seems to cover all the bases. Spot prices and carrying costs - that's where the action is!

upvoted 0 times

Joaquin

3 months ago

It's crucial to keep an eye on both spot prices and carrying costs to manage risk effectively.

upvoted 0 times

...

Beckie

3 months ago

Spot prices and carrying costs definitely play a big role in determining the risk in a commodities futures portfolio.

upvoted 0 times

...

Aleisha

3 months ago

I think changes in spot prices and commodity lease rates are the main drivers of risk in commodities futures.

upvoted 0 times

...

Rupert

3 months ago

I agree, spot prices and carrying costs are crucial in assessing risk.

upvoted 0 times

...

Kristian

3 months ago

Changes in spot prices can have a big impact on the overall risk of the portfolio.

upvoted 0 times

...

Reid

3 months ago

Spot prices and carrying costs are definitely important factors to consider.

upvoted 0 times

...

Launa

3 months ago

I agree, option B covers the key components of risk in a commodities futures portfolio.

upvoted 0 times

...