# Derivatives - Derivatives Section 2

>>>>>>>>Derivatives Section 2

• Option : B
• Explanation : If the present value of convenience yield exceeds the present value of its storage costs, then the commodity’s forward price is less than the spot price compounded at the risk-free rate.

• Option : A
• Explanation : Costs increase the forward price and benefits reduce the forward price.

• Option : B
• Explanation : FRAs are based on Libor, and they represent forward rates, not spot rates.

• A

30-day and 60-day spot rates.  • B

30-day and 90-day spot rates.  • C

30-day and 120-day spot rates.  • Option : C
• Explanation : This FRA expires in 30-days and is based on a 90-day loan which starts on day 30. The forward rate represents the rate which can be locked in today for a 90-day loan starting 30-days from today. This rate is calculated based on the 30-day spot rate and the 120-day spot rate.

• A

larger than future contract payoffs.  • B

smaller than future contract payoffs.  • C

equal to future contract payoffs.  • Option : C
• Explanation : Forward payoffs occur all at expiration, whereas futures payoffs occur on a day-to-day basis but would equal forward payoffs ignoring interest.
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Derivatives Section 2