Question 8

Todayrefers to the2/26/16Wall Street Journal.

(The answers would be the same if today were 12/16/20)

Futures prices are related to the following:

spot price, cost of carry (financing cost + storage cost) & convenience value.

Fill out the boxes in columns (b), (c) & (d) of the table below to indicate whether these costs are positive (+), negative (-) or zero (0) by placing +, - or 0 in the appropriate box where

Column (a) represents the Financing Cost (FC) in a cash & carry arbitrage.

Since the FC is a cash outflow, this column is all +as shown.

Column (b) represents the Storage Cost (SC) in today's market.

Column (c) represents the sum of these costs (FC + SC) in today's market.

Column (d) represents the Convenience Value in today's market.

NOTE: Cash Outflows are positive (+) costs; Cash Inflows are negative (-) costs.

In column (e), indicate whether the market structure of the futures contracts on these commodities, as evidenced by the prices today, are in contango or backwardation by placing a C or B in column (e).