Explanation:
Correct Answer: A
Commodity exposure is most commonly achieved through derivatives rather than physical ownership. This is because:
Physical storage and transportation costs: Commodities are physical goods that require storage, transportation, and insurance, making direct ownership impractical for most investors.
Liquidity and accessibility: Commodity derivatives (futures, options, swaps) provide easier access to commodity markets without the logistical challenges of physical ownership.
Standardization: Derivatives offer standardized contracts that are more suitable for investment purposes.
Why B is incorrect: Commodities do not generate income streams like interest or dividends. Their returns come primarily from price appreciation (capital gains) rather than ongoing income.
Why C is incorrect: While commodities are physical products, most investors do NOT prefer to trade the actual commodity due to the practical difficulties of storage, transportation, and handling. Derivatives provide a more efficient way to gain exposure to commodity price movements.
Key Concept: Commodity investments are typically accessed through derivatives markets rather than physical ownership, as derivatives offer greater liquidity, lower transaction costs, and eliminate the need for physical storage and handling.
Ultimate access to all questions.
No comments yet.
With regard to commodities, it is most likely true that:
A
exposure is most commonly achieved via commodity derivatives.
B
their returns are based on an income stream such as interest or dividends.
C
they are physical products so most investors prefer to trade the actual commodity.