Define the following Cash-and-Carry-Arbitrage CAIA 2020 Flashcards

Refers to commodity firms that perform the tasks of transforming commodities.

Is a transaction designed to generate a riskless profit in which commodities are purchased in the spot market and sold in the futures market.

Are the currencies of countries whose major exports are commodities.

Is the difference between the highest price a buyer would be willing to pay (the buyer’s reservation price) and the actual market price

Is the expanded use of financial contracts and financial engineering to facilitate commodity trading.

Refers to risk arising from fluctuations in spot commodity prices.

Is the relationship between time-to-delivery and commodity futures contract prices.

Arises from potential losses due to limits on access to financing.

States that prices of exhaustible commodities, such as various forms of energy and metals, should increase at the prevailing interest rate—or, more specifically, the real increase in the net price of oil should increase at the real rate of interest.

Means that the market is in contango in the short term, but gives way to backwardation for longer-maturity contracts.

Is the portion of the return of a commodity investment that results from the return on the cash collateral, which is usually a Treasury bill rate in the United States, although the cash collateral can be in other forms, such as Treasury Inflation-Protected Securities (TIPS), money market securities, and other liquid assets.

Holds that producers of bonds (borrowers) prefer long maturities, whereas consumers of bonds (lenders) prefer short maturities, distorting relative prices or rates from reflecting unbiased expectations.

Occurs when the profitability of traditional commodity merchandising depends on margins between purchase and sale prices, and the volume of transactions.

Is the convenience yield that will match buyers with sellers and can be measured using market prices.

Is the relationship between expected spot rates and forward rates that varies non-monotonically throughout the range of delivery dates due to supply and demand pressures in localized regions of the curve.