CAIA - 24 - Assessing Commodity Investment Products Flashcards Preview

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Flashcards in CAIA - 24 - Assessing Commodity Investment Products Deck (78)
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1

Prices of physical commodities (have/have not) kept up with inflation while returns on commodity futures (have/have not) kept up.

Prices of physical commodities have not kept up with inflation while returns on commodity futures have kept up.

2

Most direct commodity investments are achieved through ___.

Most direct commodity investments are achieved through derivatives.

3

The one exception where investors would like to own the physical commodity rather than a derivative is ___ ___.

The one exception where investors would like to own the physical commodity rather than a derivative is precious metals.

4

___ ___ ___ are the primary vehicle used by institutional investors for exposure to commodity indices.

Commodity index swaps are the primary vehicle used by institutional investors for exposure to commodity indices.

5

A commodity swaps initial market value is ___.

A commodity swaps initial market value is zero.

6

Investors may choose to use swaps instead of futures because:

 

1. Futures aren't ___

2. ___-___swaps are available and liquid

3. Investors maintain control of ___and can use it to earn a ___ ___

Investors may choose to use swaps instead of futures because:

 

1. Futures aren't available

2. Long-term swaps are available and liquid

3. Investors maintain control of cash and can use it to earn a higher return

7

Swaps are preferred by some institutional investors because they are ___ ___ and ___ ___ risk.

Swaps are preferred by some institutional investors because they are competitively priced and spread counterparty risk.

8

There are a number of drawbacks to swaps:

 

1. Direct access is limited to ___ ___

2. Secondary market is ___

3. Swaps have more ___risk

There are a number of drawbacks to swaps:

 

1. Direct access is limited to institutional investors

2. Secondary market is illiquid

3. Swaps have more counterparty risk

9

Studies have found that commodity company stock have ___ returns and ___volatility than commodity futures. Additionally, commodity companies behave more like ___and (are/are not) good proxies for commodity futures.

Studies have found that commodity company stock have similar returns and higher volatility than commodity futures. Additionally, commodity companies behave more like equities and are not good proxies for commodity futures.

10

Equity returns of a commodity company are most correlating to the commodity when returns are ___.

Equity returns of a commodity company are most correlating to the commodity when returns are increasing.

11

High yield bonds of commodity companies have a ___ correlation to the commodities than investment grade bonds.

High yield bonds of commodity companies have a higher correlation to the commodities than investment grade bonds.

12

Index mutual funds can outperform their benchmarks by actively managing the investment's ___.

Index mutual funds can outperform their benchmarks by actively managing the investment's collateral.

13

Commodity based mutual funds usually have ___ fees ___ other mutual funds.

Commodity based mutual funds usually have similar fees to other mutual funds.

14

Commodity ETFs tend to charge ___ fees than mutual funds

Commodity ETFs tend to charge lower fees than mutual funds

15

Tracking errors are smallest for commodity ETFs that use ___ ___, followed by ___, then ___.

Tracking errors are smallest for commodity ETFs that use full replication, followed by futures, then swaps.

16

Commodity partnerships in the U.S. are often structured as ___ ___ ___.

Commodity partnerships in the U.S. are often structured as master limited partnerships.

17

MLPs (do/do not) have required distribution minimums.

MLPs do not have required distribution minimums.

18

MLPs are required to generate at least ___% of their income from activities from qualified sources.

MLPs are required to generate at least 90% of their income from activities from qualified sources.

19

MLPs finance their growth using the ___ ___, which can ___stakes for existing LPs

MLPs finance their growth using the capital markets, which can dilute stakes for existing LPs

20

___ ___-___notes are debt instruments that, at maturity, pay principal and a return based on the performance of a commodity or basket of commodities over a certain time period. They may be ___-___bonds.

Commodity index-linked notes are debt instruments that, at maturity, pay principal and a return based on the performance of a commodity or basket of commodities over a certain time period. They may be zero-coupon bonds.

21

Commodity index-linked investments have ___ minimums than swaps.

Commodity index-linked investments have smaller minimums than swaps.

22

Commodity index-linked notes have an active ___ ___.

Commodity index-linked notes have an active secondary market.

23

Commodity index-linked notes (do/do not) require posting of collateral. 

Commodity index-linked notes do not require posting of collateral.

24

___ ___-___ notes are commodity-linked debt instruments traded on an exchange.

Commodity exchange-traded notes are commodity-linked debt instruments traded on an exchange.notes are debt instruments traded on an exchange.

25

___ are issued by financial institutions that promise to pay a return on an index and then repay the principal at maturity.

ETNs are issued by financial institutions that promise to pay a return on an index and then repay the principal at maturity.

26

ETNs are exposed to ___ risk from the issuer.

ETNs are exposed to credit risk from the issuer.

27

ETNs have ___ counterparty risk than swaps.

ETNs have higher counterparty risk than swaps.

28

The key advantage of ETNs is that there is little ___ ___.

The key advantage of ETNs is that there is little tracking error.

29

ETNs are often referred to as ___ ___ ___.

ETNs are often referred to as prepaid forward contracts.

30

ETNs may qualify for ___-___ tax treatment.

ETNs may qualify for long-term tax treatment.

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