VOCAB!
NAME THAT VOCAB WORD - The difference between spot and futures prices.
Basis
NAME THAT VOCAB WORD - How easily a commodity can be bought or sold without significantly affecting its price.
NAME THAT VOCAB WORD - The price which is received at the current moment for immediate delivery of a commodity.
Spot price
Name an example of a reseller.
Grain Elevator
Name an example of costs to provide goods and services.
fertilizer, land rent, etc.
NAME THAT VOCAB WORD - A customized agreement traded in cash markets, where the seller agrees to deliver a certain amount and quality of a commodity to a specific place and time, in exchange for a prearranged price.
Forward Contract
NAME THAT VOCAB WORD - A commitment in the market; traders take a _____ when they purchase or sell in the market.
Position
NAME THAT VOCAB WORD - A local market where a commodity is physically traded between a buyer and seller for a cash price.
Cash Market
What is a speculator?
Market participants (Buyers and sellers) who have no interest in the physical commodity, meaning they do not want to deliver or receive the physical commodity in the future. Instead, they use futures contracts for the purpose of making money.
When reading a futures price, what does "last" indicate?
The latest price observed in the futures market for each delivery month.
NAME THAT VOCAB WORD - A position in the futures market when a trader purchases a futures contract.
NAME THAT VOCAB WORD - The price determined in customized agreements for future delivery of a commodity.
Forward Price
NAME THAT VOCAB WORD - the ability to control a large position in a commodity with a small amount of capital.
Leverage
How do you calculate realized price?
Intiial futures price + realized basis
If price increases, the long position in futures contracts ...
makes a profit
NAME THAT VOCAB WORD - Occurs continuously as traders buy and sell, based on their price expectations, which provides liquidity in the market.
Price Discovery
NAME THAT VOCAB WORD - Market participants (buyers and sellers) who have no interest in the physical commodity, meaning they do not want to deliver or receive the physical commodity in the future. Instead, they use futures contracts for the purpose of making money.
Speculator
NAME THAT VOCAB WORD - The price commodities are being traded at the Chicago Board of Trade
Futures Price
What is the formula for revenue?
Yield * price
What is the purpose of a cash market?
Establish a specific location for trading.
NAME THAT VOCAB WORD - Commodity producers (farmers), grain elevators, commodity processors, and/or commodity exporters and importers who manage price risk from price changes in commodities by making agreements to buy or sell at a fixed price in the future, using forward and/or futures contracts.
Hedger
NAME THAT VOCAB WORD - Actual basis in the local cash market at the conclusion of a hedge when the commodity is received
Realized Basis
NAME THAT VOCAB WORD - A position in the futures market when a trader sells a futures contract.
Short Hedge
When basis is a negative value it indicates the spot price is less than the futures price, and considered a _______ market.
Carry
What is the main factor that explains changes in futures prices?
Expectations for supply and demand in the delivery month.