Corporation Finance Final Exam Spring 2014
Conversion factors were developed by the CBOT in 1970's and was intended to compensate for the coupon and timing differences of …show more content…
• Options give the buyers the right, but not the obligation, to exercise the option. So it is more flexible than futures contract
• Options buyer has no margin requirements; he or she just needs to pay the premium.
• Option buyer has limited loss unlike futures contract where the loss can be unlimited. The most an option buyer can lose is the premium
• Option buyer has to pay premium
• Option seller is still the possibility of facing unlimited loss and has to post margin requirements
7. What is a long only commodity fund, describe its main features. Long only commodity fund have generated returns similar to diversified equity funds. What are the components of the returns from a long only commodity fund? Are commodities a separate asset class? Discuss.
Long-Only Commodity Funds invest in a variety of futures contracts, creating a basket of commodities. By investing in futures contracts and rolling them over, the funds replicate the price performance of the underlying commodities. Long only commodity funds have historically performed with low correlation with the stock market, and hence they have gained significant attention from investors. Components of the return include:
Physical commodity price movement –