Skip to content

NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities

Spot price of a commodity is Rs 5,000 per quintal. Storage and insurance cost Rs 100 per quintal for the period, and financing costs are Rs 150 per quintal for the same period. Under the simple cost-of-carry model with no convenience yield, the theoretical futures price for that period is:

The theoretical futures price is Rs 5,250 per quintal. Under the cost-of-carry model, futures equals spot plus all carrying costs: 5,000 plus storage and insurance of 100 plus financing of 150. Leaving out either cost, or subtracting them, gives incorrect values.

  1. ARs 5,250Correct
  2. BRs 5,100
  3. CRs 5,150
  4. DRs 4,750

Explanation

Futures price = spot + storage and insurance + financing = 5,000 + 100 + 150 = Rs 5,250. Rs 5,100 omits financing, Rs 5,150 omits storage, and Rs 4,750 subtracts the costs wrongly.

Did you get it right without looking?

One question tells you little. A timed set on Fundamental Analysis of Commodities shows your real accuracy, how long you take and where you lose marks.

Practise Fundamental Analysis of CommoditiesFree diagnostic mock

More Fundamental Analysis of Commodities questions