Week 4 Tutorial Questions-1

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Swinburne University of Technology *

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ACC30005

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Finance

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Apr 3, 2024

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docx

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Swinburne University of Technology Topic 4 Page 1 of 1` FIN30020 Alternative Investments Swinburne University of Technology FIN30020 Alternative Investments Tutorial Questions Topic 4 1. Describe different types of commodities. 2. Identify three primary reasons for investing in commodities. 3. Answer the following MCQs: 3.1. Industrial activity most likely affects the demand for which of the following commodities? A. Copper B. Natural gas C. Softs (e.g., cotton, coffee, sugar and cocoa) 3.2. Which of the following commodity sectors are least affected in the short term by weather-related risks? A. Energy B. Livestock C. Precious metals 4. Describe how event risk can affect the traded prices of commodities in a global market? 5. Explain the three ways to gain exposure to commodity assets and discuss the advantages and disadvantages of each for an investor who is looking to achieve commodity exposure. 6. Most individual investors cannot purchase commodities due to the high cost of carry. Discuss some alternative investment strategies that can give an investor exposure to the commodities asset class without the requirements for physical storage. 7. What are the market participants in the Commodity market? 8. How can a user of agricultural commodities take advantage of the futures market to hedge their exposure to a rise in price of a commodity? What would they do in the expectation of a fall in commodity price? 9. Consider a country in which two airlines operate. One hedges its exposure to the oil price and the other chooses not to hedge. Describe the likely effects on the two companies' share prices if: a conflict in the Middle East caused disruption to oil exports from OPEC countries; a major discovery of shale oil was made in the United States and production began immediately. 10. An important distinction between spot and futures prices for commodities is that: A. spot prices are universal across regions, but futures prices vary by location. B. futures prices do not reflect differences in quality or composition for a commodity. C. spot prices vary across region based on quality/composition and local supply and demand factors.
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