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ETFs 113: Commodities Exchange-Traded Funds

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1.
One driver of futures contracts is the spot return. This is _______.
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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.
2.
Why do physically-backed commodity ETFs deal in precious metals as opposed to other commodity subsectors?
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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.
3.
Commodity ETFs based on which type of security are likely to be impacted by capital markets factors such as movements in the stock market or industry regulation?
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Equity based. An equity security can be affected by a company's operations or stock market movements that do not stem from fluctuations in the targeted commodity.
4.
What is the term/classification for futures markets in which contract prices become progressively more expensive at later expirations?
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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.
5.
What is the term/classification for futures markets in which contract prices become progressively cheaper at later expirations?
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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.