hard · FRM Part 1 Financial Markets and Products
A commodity is currently trading at a spot price of 85. The6-month futures price is82.
Given a risk-free rate of 4% and storage costs of 2%, what does the 'backwardation' in this market primarily signify regarding the convenience yield?
- The convenience yield is zero, which is typical for investment assets like gold.
- The market is in contango, signifying ample supply and low convenience yield.
- The convenience yield is exactly equal to the storage cost, neutralizing it.
- The convenience yield is high, exceeding the sum of the risk-free rate and storage costs.
Sign up free to see the explanation and track your rank →
More FRM Part 1 Financial Markets and Products practice
- If the oil market shifts from backwardation to a persistent contango, which of the followi
- If at the time of delivery S_1 = $72 and F_1 = $74, while the hedge was entered at F_0 =
- According to the standard 'Default Waterfall' of a Central Counterparty (CCP), which layer
- A 'Fallen Angel' is a term used in the bond market to describe:
- A 'long' position in which of the following provides insurance against a rise in prices?
- An American put option is deep in the money. Why might it be optimal to exercise this opti
- If at maturity the futures price were significantly higher than the spot price, what would
- How is the 'swap rate' typically determined at the inception of an interest-rate swap?