NISM Certifications · NISM-Series-XV: Research Analyst · Fundamental Analysis of Commodities
The 'convenience yield' on a commodity refers to:
Convenience yield is the implicit benefit of holding the physical commodity instead of a futures position, such as keeping production uninterrupted during shortages. It offsets carrying costs and tends to lower futures prices relative to spot, which can lead to backwardation.
- AThe benefit from holding the physical commodity rather than a futures contract, which lowers futures prices relative to spotCorrect
- BThe interest earned on margin deposits
- CThe fee charged by warehouses for storage
- DThe premium paid for higher-grade deliverable quality
Explanation
Convenience yield is the non-monetary benefit of holding the physical commodity, such as ensuring uninterrupted production. It offsets the cost of carry and tends to reduce the futures premium, possibly causing backwardation.
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