Commodity Forward Contracts Differ from Financial Forwards in the Following

question 2

Multiple Choice

Commodity forward contracts differ from financial forwards in the following manner:

• A)The underlying asset in a commodity forward is an asset that may be used in production and that gets consumed in the process.
• B)Commodity forwards are always more costly than financial forwards when the spot assets have the same prices.
• C)Commodity forwards have physical delivery whereas financial forwards have cash delivery.
• D)Commodity forwards do not have inconvenience yields whereas financial forwards do.

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Definitions:

Working Capital

The balance sheet accounts associated with day-to-day operating activities. Gross working capital is generally defined as current assets and net working capital as current assets minus current liabilities.

Accounts Receivable

Money owed to a company by its customers for goods or services already delivered but not yet paid for.

Inventory

Represents the goods or materials a business holds for the purpose of resale or production.

Interest Expense

The cost incurred by an entity for borrowed funds, which can include the cost of bonds, loans, or lines of credit.