Explanation:
For consumption commodities, the key feature is the convenience yield—the non-monetary benefit of physically holding the asset. Because convenience yield is not directly observable, it can limit straightforward arbitrage and makes pricing different from investment assets.
For investment commodities, futures prices are generally determined from observable spot price and carry variables such as financing cost and income yield.
So the best answer is B.
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Q-164.2. According to Hull, with respect to futures price and the cost of carry model, what is a key DIFFERENCE between a consumption commodity (e.g., oil) and an investment commodity (e.g., Treasury bonds)?
A
Storage cost of consumption commodities constrains arbitrageurs such that futures price cannot be calculated from spot price and observed variables
B
Convenience yield of consumption commodities constrains arbitrageurs such that futures price cannot be calculated from spot price and observed variables
C
The financing cost of investment commodity implies a higher futures price (for the investment commodity) than for a consumption commodity, all other things being equal
D
There is no material difference with respect to futures prices as both commodities are variously exposed to the four factors: financing cost, storage, income (dividend), and convenience