4. If the lease rate of commodity A is less than the risk-free rate, what is the market structure of commodity A? [source: FRM 2010 practice exam].

• a.  Backwardation
• b.  Contango
• c.  Flat
• d.  Inversion

[my adds]

4.2 Is the CONVERSE a true statement: Does a contango necessarily imply the lease rate is less than (<) risk-free rate, for a consumption commodity?
4.3 What is the financial commodity equivalent of a consumption commodity lease rate?
4.4 (Hard) How does McDonald define lease rate in terms of growth rate and discount rate?
4.5 (Helpful) What does contango imply on the commodity roll return?
4.6 (To contemplate) Use 4.5 to explain impact of “shift to contango” on Metallgeschaft?

Answers

• Here on forum

See the following related questions and/or threads at the bionicturtle.com forum:

• Contango, backwardation & expected future price
• Gold is typically in contango (McDonald: durable, cheap to store relative to value, widely held leads to “boring” contango)
• Toughly annotated sample FRM question explores Gold contango
• GARP FRM practice question (i.e., physical storage contributes to contago)
• The role of contango in Metallgeschaft
• Deeper discussion on Metallgeschaft

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