NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities
In commodity markets, what does the term 'convenience yield' represent?
Convenience yield is the benefit of holding the physical commodity instead of a futures contract, such as ensuring uninterrupted production or being able to sell during a shortage. It is separate from financing and storage costs, which form the cost of carry.
- AThe benefit a holder gets from physically owning the commodity rather than holding a futures contract on itCorrect
- BThe interest cost of financing the purchase of the commodity
- CThe fee charged by a warehouse for storing the commodity
- DThe premium paid for a commodity of higher quality grade
Explanation
Convenience yield is the non-monetary benefit from holding the physical commodity, such as keeping a production process running during shortages. Interest and storage costs are components of cost of carry, not convenience yield. Quality premiums relate to grade differentials.
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