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1.
What is the term/classification for futures markets in which contract prices become progressively more expensive at later expirations?
Contango. As futures contract prices become more expensive at later expirations, they create a negative implied roll yield. These markets are said to be in contango.
2.
What is the term/classification for futures markets in which contract prices become progressively cheaper at later expirations?
Backwardation. As futures contract prices become cheaper at later expirations, they create a positive implied roll yield. These markets are said to be in backwardation.
3.
Why do physically-backed commodity ETFs deal in precious metals as opposed to other commodity subsectors?
Low storage costs. It would be unwieldy and inefficient to store corn for its use as a fund's physical base because its value is very low relative to its size. Large values of precious metals can be stored in a relatively small area.
4.
Which of the following is NOT a method by which ETFs can/will offer exposure to commodities?
Dividend based. The three types are equity-, physically, and futures-based exposure.
5.
One driver of futures contracts is the spot return. This is _______.
The change in the price of the target commodity. Under most circumstances, the change in price of the underlying commodity is the primary driver of the futures return.
