Limited Time Offer: Save 10% on all 2021 and 2022 Premium Study Packages with promo code: BLOG10    Select your Premium Package »

Construction of Commodity Indexes

Commodity indexes have been created to portray the aggregate movement of commodity prices, investment vehicles, and investing approaches. It can be said that an asset class does not exist without at least one representative index. Commodity indexes play the following…

More Details
Commodity Swaps and Exposure to Commodities

A commodity swap is a legal contract involving the exchange of payments over several dates as determined by specified reference prices or indexes relating to commodities. Swaps are an alternative to futures when investors want to gain market exposure or…

More Details
Roll Returns In Markets In Contango and Backwardation

Roll return is the amount of return generated in the futures market after an investor rolls a short-term contract into a longer-term contract and profits from merging the futures price toward a higher spot or cash price. When the market…

More Details
Components of Total Return for a Fully Collateralized Commodity Futures Contract

The total return on commodity futures is analyzed into the following key components: The price return (or spot yield). The roll return (or roll yield). The collateral return (or collateral yield). The Price Return Refers to the change in commodity…

More Details
Theories of Commodity Future Returns

Insurance Theory Keynes proposed it in 1930 and is also known as the theory of “normal backwardation.” The theory proposes that producers use commodity futures markets for insurance by locking in prices and making their revenues more predictable. Keynes’ theory…

More Details
Spot and Future Price Comparisons in Contango and Backwadation Markets

Commodity prices are generally represented by; Spot price- refers to the current price to deliver a physical commodity to a specific location or purchase and transport it away from a designated location, e.g., the price quoted at a grain silo,…

More Details
Participants In Commodity Future Markets

Recall, public commodity markets are controlled as a central exchange where members trade standardized contracts to make and take delivery at a specified place at a specified future timeframe (futures markets). Commodity Hedgers They’re knowledgeable market participants, though they may…

More Details
Valuation of Commodities in Contrast to Equities and Bonds

We can use the following modes of valuation to compare commodities and equities. Nature of Asset Commodities are mostly physical or tangible assets, e.g., a lump of gold, a pile of corn, etc., except for some energy commodities, e.g., electricity….

More Details
Commodity Life Cycles

The life cycle of commodities differs significantly depending on the economic, technical, and structural (i.e., industry, value chain) profile of each commodity and the sector. The commodity life cycle has an impact on the following aspects; It reflects and magnifies…

More Details
Characteristics of Commodity Sectors

The recommended approach for segmenting the various asset classes is by Thomson Reuters/Core Commodity CRB Index developed by the well-recognized Commodities Research Bureau as follows: Energy  It includes the following:  Crude Oil Crude oil (or petroleum) is a flammable fluid…

More Details