Commodities Exam 2

Dec. corn is @ $5.45. The full cost of carry is $0.06/month. If march corn is trading at _____ then the market is said to be at full carry.

$5.63

You are looking at an inter-commodity spread of corn and soybeans. After gathering information, you expect that the price of soybeans will improve relative to the price of corn, which strategy do you decide to enter the spread on?

Buy soybeans, sell corn

What are the three main types of spreads that are available for trading>

Calendar Spread Inter-commodity spread Inter-market

A speculator is looking to buy Dec. corn futures contract @ $4.78 and they place a limit order of "Sell 10 Dec. Corn at $4.68". This order was placed correctly as a "better" position.

False

Hedgers typically use orders more frequently than speculators.

False

Liquidity costs are the costs incurred when liquidating a position quickly and are considerably higher in the electronic market.

False

On October 1st Dec. Soybeans is @ $8.37 and March soybeans are at $8.91. On November 1st Dec Soybeans are at $8.65 and March soybeans are at $9.02. Did the current Dec-March spread narrow or widen?

Narrow

A rising volume and a falling open interest can suggest:

Position liquidity

What is the purpose of placing a storage hedge?

To make a profit from strengthening basis

A sign of an inverted market is that nearby futures contracts are trading higher.

True

An advantage of a market order is that you are typically guaranteed a fill on your contract.

True

You would use a buy-stop order to limit losses on a short position and establish a long hedge if prices rise

True